In the United States, the Financial Crimes Enforcement Network regulates the customer identification procedures, (a.k.a "know your customer rules"), at banks. In order to clarify these procedures, the Financial Crimes Enforcement Network issued guidance in January 2004. These customer identification procedures codified at 31 C.F.R Part 103.121, demonstrate that there is no discretion as to what information is needed when a new bank customer opens an account. In the case of a customer who is a U.S. person for example, the minimum requisite information includes: a taxpayer identification number issued by the Internal Revenue Service (i.e. social security or employer identification number); date of birth; residential or business street address; etc. After obtaining this kind of information, a U.S. bank must then verify it based on a "risk-based" approach.
The United Kingdom similarly has rules for checking the identities of its bank customers. For example, the regulatory body for the financial services industry in the United Kingdom, (the Financial Services Authority or "FSA"), has published its know your customer rules in Discussion Paper 22, at pages 9-13. This past July, the FSA also published a consumer leaflet mentioning these rules, "Just the facts about proving your identity". The FSA's leaflet explains that UK law requires an identity check when a new customer opens a bank account and that checking identities helps prevent money laundering, identity theft and terrorist financing. It further advises that: "Neither the FSA nor the law sets out how firms should check identity. In most cases firms will follow guidance produced by an independent industry body, the Joint Money Laundering Steering Group". According to the Joint Money Laundering Steering Group, a number of different documents can be used to prove identity such as a: passport; photo-style driver's license; letter from a social worker or care home manager verifying identity; etc. As of August 31, 2006, the FSA had also replaced its Money Laundering Sourcebook with the guidance now found in its Senior Management, Systems and Controls Sourcebook, at SYSC 3.2.6 et. seq.
There will however soon be regulatory change with respect to how a bank identifies its customers in the United Kingdom. This is true because the United Kingdom's new Money Laundering Regulations 2007* come into effect on December 15, 2007. These regulations obligate banks to apply a standard of due diligence, (as determined by a risk-based approach), when they check a new customer's identity. In many cases, banks will also be required to identify the true beneficial owner of funds. Since the United Kingdom's rules for identifying bank customers are about to change, I wanted an expert's opinion. I then called "Mr. London", who has vast experience in the methods used to hide assets as a former vice president of a major global bank in the United Kingdom. Mr. London knew all about how banks checked their customers' identities, especially because he had been responsible for his bank's financial fraud and money laundering investigations.
During our phone conversation Mr. London expressed his belief that, (despite the prospective change in regulation), money laundering, terrorist financing and other financial fraud would likely continue to increase throughout the United Kingdom. He also suggested that there was little standing in the way of a determined criminal because of the "complicity or misfeasance" of many banks and the use of nominees to open bank accounts. Since crimes like money laundering and terrorist financing often extend beyond just one nation's borders, I was left to wonder just what this meant for all of us.
*Money Laundering Regulations 2007, is reproduced under the terms of Crown Copyright Policy Guidance issued by HMSO
Copyright 2007 Fred L. Abrams
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