The purpose of the Anti-Money Laundering Act is to prevent financial crime and terrorist financing through money laundering and fraud. The regulations from the Act require that all supervised entities must know who their customers are, a process known as know-your-customer (KYC).
The legislation affects over 25,000 Swedish businesses, and many organisations find it challenging to understand and comply with the requirements. Simple KYC procedures and processes are challenging, as it can be difficult to know exactly where and how to begin.
In this article, we'll provide you with actionable advice on creating an effective KYC process for getting to know your customers and reducing the risk of sanctions.
According to the requirements in the Anti-Money Laundering Act, supervised entities must adopt a risk-based approach. This means, among other things, that you must know who your customers are. To establish a know-your-customer process or KYC, you must complete these four steps:
1. Identify the beneficial owner
The first step is to identify the beneficial owner. You must also know who is authorised to represent the company, such as directors or signatories.
2. Verify the customer's identities
Once you have identified the persons linked to the customer, you must ensure they are who they claim to be. You need to verify their identities using valid identification documents.
3. Screen and check against sanctions and PEP lists
Once the persons are identified, you must check against sanctions and PEP (Politically Exposed Persons) lists. These lists contain companies and individuals that are sanctioned or in a politically exposed position. The UN, the EU, and others publish and update these lists.
You cannot do business with the customer if you receive a sanction hit. If it's a PEP hit, you must thoroughly investigate the customer's background since they present a higher risk of money laundering or corruption.
4. Continuous controls
Not only should you check your customers at the start of a business relationship, but you should also ensure that you always have up-to-date information about them.
This means that you must regularly check customers' names and details against the Swedish Companies Registration Office's register (Bolagsverket) and the various lists of sanctioned and politically exposed persons.
The easiest way to do this is to use an automated solution that runs the checks every night, especially if you have many customers.
Suppose you discover a customer or a person linked to a customer has been placed on a sanctions list. In that case, you must report it to the Financial Intelligence Unit (Finanspolisen), which can investigate further.
You must also conduct a risk analysis of your business annually and ensure that your staff receive ongoing training on the latest AML regulations and compliance practices.
A supervised entity should continuously analyse its readiness for potential financial crime risks. To fulfil the Anti-Money Laundering Act requirements, you can analyse three steps.
Step 1: Analyse what elements may be missing at your company regarding roles and procedures.
Step 2: Mapping processes and systems.
Step 3: Define.
A digitised and automated KYC solution can be the starting point for your AML efforts.
Trapets KYC is a solution that effectively helps you get started with know-your-customer knowledge to secure your business from sanctions and prevent becoming a target for financial crime.
Simplify and automate your onboarding of new customers today.