AML for Individuals

An individual’s identity consists of certain information such as name, address and date of birth which enables you to know who they are. Whether you should carry out simplified due diligence, standard due diligence or enhanced due diligence on a specific individual will be determined by your risk based approach.

For simplified due diligence the act of identifying the individual through the collection of relevant information would suffice. However, standard due diligence, would require this to be taken a step further.  This extra step is the requirement to verify the individual’s identity.

When an individual falls into the category for requiring enhanced due diligence then steps must be taken beyond the identification and verification of the identity. Depending on your requirements this can take many forms. Examples of this could be undertaking web based searching and/or employing the use of an adverse information database.

No matter what level of due diligence is initially carried out on the individual there are two additional checks to undertake.  Firstly, you will need to understand whether the individual is a politically exposed person (PEP).  For individuals previously categorised as requiring simplified due diligence or standard due diligence, being identified as a politically exposed person (PEP) will elevate them to enhanced due diligence.  Depending on your risk based approach this is likely to trigger other checks as well as the inclusion of the individual on your PEP database.

The second check that must be undertaken is to ensure the individual is not subject to financial sanctions. Unlike the anti-money laundering requirements financial sanctions does not have a risk based approach. When an individual is confirmed as being subject to financial sanctions this must be reported to the relevant issuing authority.

Details to Collect

This section looks at the type of information you may look to collect from a customer as part of the due diligence process.  This is not a definitive list and not all pieces of information may be relevant for all businesses.  We have provided this as a starting point to help get you started and think about what your requirements may be.

Personal Identification Information

  • Full Name
  • Previous Names
  • Known As

Understanding the full name of your client including any middle, previous or alias names is important for obtaining a clear picture on you client.  This will also be useful should your need to undertake any further research.

  • Home Address
  • Date lived at address from
  • Previous Address (if at current address for less than desired period)
  • Date lived at address from
  • Date lived at address to
  • Contact Address
  • Reason for contact address

Knowing the home address of your client is a must but understanding their previous address is another important factor.   If further research is required this may help uncover information that may not have come to light. It can also enable you to discount potentially negative information. For both of these reasons knowing the dates the client resided at the addresses is also important. If you use a solution to electronically identify your client the previous address will usually be used for additional fraud prevention checks by looking at data consistency.

It may be that your client requests you to use a contact address.  This adds in additional risk that your client may not be the individual at the home address.  Consideration should be given to making some contact via the home address to confirm your client is who they say they are. Documenting the reason for the use of a different address ensures consideration has been given to the risk.

  • Date of birth
  • Telephone number
  • Email Address
  • Employment Information
  • Employment Status
  • Employment Details

Understanding the employment position of your client and detail of that employment will be a great help when looking to assess the money laundering risk of a client. For example a self-employed client running a business with a high cash throughput will generally be higher risk due to the ease at which criminal proceeds can be mixed in with legitimate funds.

Additional Information

  • Geographic Location

The location in which your client is living or working may be a factor in increasing the risk they bring. In some countries the approach to anti-money laundering and the prevention of bribery and corruption is not sufficiently enforced.  This could result in a potential for criminal funds to filter through your business.

  • Face to Face/Remote

The method in which a client is interacted with will adjust the associated risk. Having a relationship where a client is never met face to face is at higher risk for fraud and steps should be taken to minimise the risk.

  • Service Required

It may be that your business only provides a single core service and therefore the level of risk will be consistent.  However, where different products or services are offered you may wish to adapt the level of due diligence undertaken based on this risk.

Client Activity

  • Type of transactions
  • Volume
  • Value

Understanding what will be normal for your client will enable you to identify when something abnormal happens.  There may be a valid reason for changes in your client’s activity such as a significant increase in the amounts going through your business.  However, it could be an indicator to a change in the risk the client brings warranting a higher level of due diligence.

How to Verify Individuals

Verifying the identity of an individual can be completed in a number of ways such as using documents and/or electronic identification.  You are required to verify, as a minimum, the individual’s full name and either their residential address or date of birth.

Verification Using Documents

There are various types of documents that an individual can provide to help verify their identity. These documents will vary in terms of how much weight they hold. For example, some documents such as a passport require the individual’s identity to be verified to obtain the document, whereas other documents, such as a utility bill, can be obtained with very little information being presented.   Documentation supplied by a government is preferable, but can be supported by documentation that is supplied by a public authority, court or perhaps a financially regulated service provider.

A government issued document that includes confirmation of the name and residential address or date of birth and a photo such as a passport can be used to verify an identity. Where this type of documentation is not available a government issued document confirming the name of the individual and supporting document supplied by a public authority, court or a regulated financial service provider that includes the individuals full name and either date of birth or residential address can be used. For example your customer could provide an old style driving licence and a council tax statement.  Visiting the individual at their residential address can also count towards a supporting document.

When reviewing supplied documentation you should consider the risk of the document being a forgery.  For additional assurance some documents can be electronically verified.  For example, you may wish to electronically verify the Machine Readable Zone on a passport to ensure it matches the details supplied.  Whilst this sort of verification does not eliminate the risk of a forgery it can help mitigate the risk.

Electronic Verification

Electronic ID Verification can be used to verify an individual’s identity independently or in conjunction with documentation depending on your risked based approach and processes.

The check works by matching the provided identity details from the individual against their electronic “footprint”.  An electronic footprint is built over the course of time through everyday activities such as opening a bank account or taking out a mortgage.  These types of events create a record containing identity details such as name, residential address and date of birth. In a similar way to viewing documentation it compares these details to the details held in their electronic footprint and if details match to the required level then their identity is validated.  An electronic ID Verification check needs to involve multiple sources and include one match with their full name and residential address and a second match against their full name and either residential address or date of birth.   The electronic verification should include screening against positive and negative information. The positive element being the individual’s identity details and negative could include screening against databases such as the death register.

When using this approach you should be aware of impersonation fraud. Does the identity provided to you by the individual actually belong to the individual?  There are a number of ways to mitigate this risk such as sending information to the customer’s residential address, for example a welcome pack.  If impersonation fraud has occurred, the individual whose identity details are being used will become aware and can contact you if required.