Customer Due Diligence: A Practical Guide for Accounting Firms

Customer due diligence is a cornerstone of AML/CTF compliance. Learn the practical steps your firm needs to take to identify and verify clients effectively.

What is Customer Due Diligence?

Customer Due Diligence (CDD) is the process of identifying your clients and verifying their identity. Under Tranche 2, accounting firms will need to implement robust CDD procedures for clients receiving designated services.

The Three Levels of Due Diligence

Standard CDD For most clients, standard CDD involves: - Collecting identification documents - Verifying identity through reliable sources - Understanding the nature of the business relationship

Simplified CDD Lower-risk clients may qualify for simplified procedures: - Publicly listed companies - Government entities - Clients where the money laundering risk is demonstrably low

Enhanced CDD Higher-risk situations require additional scrutiny: - Politically exposed persons (PEPs) - Clients from high-risk jurisdictions - Complex ownership structures - Unusual transaction patterns

Practical Tips

1. Start at engagement - Integrate CDD into your client onboarding process 2. Document everything - Keep records of your identification and verification steps 3. Stay current - Update client information when circumstances change 4. Use technology wisely - Consider digital verification tools to streamline the process

Common Challenges

Many firms struggle with: - Balancing compliance with client experience - Dealing with complex beneficial ownership structures - Maintaining ongoing monitoring

Starting early gives you time to develop practical solutions to these challenges.