AML Screening

What's the difference between KYC and AML/CTF Screening?

While KYC and AML are often combined in discussing the Customer Due Diligence process, Know Your Customer and AML/CTF screening are two distinct processes. KYC includes procedures that result in customer identification verification (e.g. identity proofing and address verification). A second stage involves screening a customer’s identity against reliable sources to determine the risk associated with forming a business relationship. These public records are indicative of whether a customer is considered a higher-risk individual based on known characteristics. When this AML/CTF screening reveals that a customer has high-risk characteristics, an obliged entity will be required to perform enhanced due diligence measures (such as a source of wealth verification).

In summary, KYC is a vital element of AML, as properly identifying individuals and businesses grants the necessary confidence and accuracy during the screening process, mitigating risks of misidentification or false positives.

Comprehensive AML/CTF Screening

In order to accurately identify and prevent the risk of money laundering or criminal financing, a financial service may implement, among others, the following screening of a customer during a customer due diligence:

• High-risk Jurisdiction Screening: determining whether the customer resides or operates in a high-risk country determined by the European Union or the FATF;

• Politically Exposed Persons (“PEP”) Screening: determining whether a customer is themselves (or is closely associated with someone) entrusted with prominent public functions;

• Sanctions Screening: determining whether a customer is subject to financial sanctions.

A positive determination (i.e. a customer qualifies as higher risk) AML/CTF screening is not necessarily disqualifying of a customer. However, a higher-risk customer requires a more extensive enhanced customer due diligence procedure, first to determine if there are false-positives, and then if it is not a false-positive, a procedure which provides assurance that a business relationship will not result in money laundering or criminal financing.