AML: 6 customer due diligence questions you need to ask

CDD is a non-negotiable safeguard against compliance risks.

Dan Hanley, Director of Octane Accountants, says every piece of information collected in the CDD process – such as how the prospective client runs their firm, their attitudes towards their legal obligations as a director, criminal record and their history of dealing with any previous accountants – provides a unique and detailed insight.

“This is critical information in determining the viability of that client from a legal and ethical standpoint,” says Hanley.

To help you refine your CDD practices, Financial Accountant has created a checklist, in collaboration with Hanley and Jennifer Bachir, Small Business and Property Focused Accountant and Key Financial Consulting.

Of course, the exact checklist required for each client will depend on their unique circumstances, so it’s best to adapt this to your company’s service offerings and the client’s specific needs.

1 How well do you know the parties involved?

“You should understand who the parties are and the purpose of each party involved in a business. Part of identifying the parties involved is also identifying the beneficial owners of the business,” says Bachir.

Verifying the identity of company directors is essential.

“[That serves] to ensure the company director is the person they claim to be, while also outlining any spent or unspent convictions pertaining to money laundering,” says Hanley.

“If, as an accounting firm, you are governed by a regulatory body, you’ll likely be at risk of losing your membership if you are found to have engaged with a client without carrying out these tests.”

2 What businesses are they currently involved with?

“Due diligence would involve looking at what business relationships they currently have. That includes businesses they might have been involved with in the past. Looking out for any suspicious activity is also important,” says Bachir.

“Some clients may have ties with related entities. For example, they may come to you for one of their businesses but also currently be a director of a number of companies or corporate trustees. As part of your due diligence, you need to understand not only their main business but how it fits into all their dealings.”

3 Have you gained professional clearance from their previous accountant?

“Provided they are forthcoming with information, you will obtain a truly subjective assessment of the client’s conduct from a fellow accounting professional – incredibly insightful and valuable information,” says Hanley.

4 Where are they generating their income?

“You want to know the nature of their business and source of their income, what industries they are working in and if their financials compare with industry benchmarks,” says Bachir.

“Large cash transactions or regular transactions are red flags to investigate.”

5 Have you looked into the prospective client’s previous year-end accounts submissions?

Hanley says year-end accounts provide a great overview of the client’s solvency position and general trajectory.

They also enable cross-checking the details a client gives you with information reported in government databases, such as the National Health Service or HMRC.

6 What public information is available about the client?

“Apart from technical information reported from various government databases which we can obtain (with the consent of our prospective client) – such as what’s on the HMRC – we always ‘Google’ the business, the premises and the directors to see any public information that comes up. It’s a very simple and easy way to verify the entities and parties involved in a business,” says Bachir.

CDD doesn’t stop there

Once you’re happy with the answers to each of these questions, and if you decide to take the prospective client on board, due diligence doesn’t stop there.

It shouldn’t be a set-and-forget exercise, but rather an ongoing process.

“Throughout the financial year we encourage clients to keep in touch to let us know about any significant financial decisions they are making. This helps encourage a proactive approach to identifying any risks and obligations which may result from such decisions,” says Bachir.

“It’s important to have ongoing monitoring of client dealings to identify and mitigate any associated risks.”

It’s also a requirement for accountants to keep records for a minimum of six years from the end of the last financial year they relate to.

“I’d keep everything that you’ve looked at during the due diligence process on file,” says Bachir.

Learn more about anti-money laundering requirements through IFA’s AML Matters webinar series.