Entering into new business relationships is a risky business thanks to the ultimate question: ‘Is this person or company really who they say they are?’ In the business sector, we have to take active steps to get to know our customers – and the risks involved. Customer Due Diligence has become an indispensable element in taking these steps.

What is Customer Due Diligence?

Customer Due Diligence literally means: due care and attention regarding the customer. Like security, this has become ever more important in recent years, because we are often confronted with practices such as money laundering, fraud and terrorism. That’s why it’s important to get to know your customers well enough to understand their objectives and avoid taking any risks when entering into a business relationship. Customer Due Diligence is a tool that helps you get to know your customers and avoid entering into business relationships with persons who may harm the trust placed in the financial enterprise.

Perform Customer Due Diligence

If a company falls under the scope of a law or regulation (with regard to the Money Laundering and Terrorist Financing (Prevention) Act or equivalent European or American legislation) or wants to enter into a relationship with a customer or a potential customer, perform CDD is mandatory. This applies for both one-off transactions and long-term customer-supplier relationships. In fact, this is a risk inventory and assessment in accordance with the guidelines provided in relevant legislation. CDD is a process during which relevant information regarding the customer is collected and assessed for any risk to the organisation or illegal activities such as money laundering or funding terrorism. Customer Due Diligence is also known as ‘know your customer’: an enterprise needs to know who its customers are,

what risks those customers may pose, and what the business relationship is being used for.

CDD comprises:

  • Accepting customers
  • Identification and verification of customers
  • Where applicable, identification and verification of the ultimate beneficial owner
  • Establishing the purpose and envisaged nature of the business relationship
  • Monitoring and review of customers, accounts and transactions
  • Risk management

A sound CDD policy will prevent loss of integrity and help avoid paying hefty fines. CCD helps keep your business better protected against unnecessary risks.

For whom is a CDD policy important?

All financial institutions engaged in their customer’s assets are obliged to carry out proper CDD policies. Not only banks, but also insurers, accountants, financial advisers and even lawyers are obliged to report anything out of the ordinary regarding a customer to the tax authorities. This means financial institutions are actually operating as an extension of the tax authorities, making tax evasion increasingly difficult.

Why is CDD important?

Customer Due Diligence is important for the company’s overall business operations. If you enter into a new customer relationship, there’s a long list of things to check. This is what CCD is for. It also helps you avoid any hefty fines or reputational damage, and preserve the trust put in your enterprise.

Read also: The reason why Customer Due Diligence (CDD) is important

How can you successfully implement CDD?

Setting up thorough CDD processes is statutorily required, however implementing them is not always easy. You must identify and screen your customers for possible risks in advance but carrying out checks manually is very time-consuming. You can automate this process with the SCOPE CDD solution. SCOPE’s CDD solution helps you meet statutory requirements, make well-informed decisions, and prevent your company from being exposed to unnecessary risks. Everything you need to know about our CDD solution and how you can best implement it can be found here.