The high-profile scandal that shook the financial world continues. Credit Suisse, a financial firm in Switzerland, was accused, based on an international investigation by the German newspaper Süddeutsche Zeitung and Organized Crime and Corruption Reporting Project, of failing to apply due diligence procedures to its clients, amongst who were corrupt politicians, drug dealers, and criminals. The leaked documents unmask 18 000 customers whose activities are highly controversial and billions of Swiss francs that they stored in their bank accounts. This leak and the recent Pandora Papers leak showed that the need for strong AML and KYC procedures is very important and can not be ignored. 

What is Customer Due Diligence

Many businesses including financial institutions are at risk for money laundering and for penalties if their AML programs do not meet regulatory standards. Customer Due Diligence which is a part of Anti Money Laundering and Know Your Customer process are a number of activities that a business uses to verify the identity of their potential customers, assess their background information and risk level. Without completing those steps the potential client should not be able to open an account.

Why Customer Due Diligence is important

As part of KYC checks, due diligence procedures are implemented every time someone wants to open an account. More careful checks should be carried out when a politically exposed person from a high-risk country or a person involved in a high-risk activity, like weapons trading, is being verified.

The implementation of the CDD procedures not only ensures compliance with the laws and regulations but also should protect the businesses against potential risk and fraudulent actions such as identity theft. Ongoing monitoring, which is a part of the CDD also helps to identify customers’ unusual behavior. The goal of CDD is to enable institutions to predict what kind of transactions a customer is likely to engage in.

Bad Customer Due Diligence

Compliance experts who looked over the findings said many of the bank customers should not have been allowed to open accounts at all. According to the law the bank should have ensured the legitimate provenance of the handled wealth. The reporters responsible for Credit Suisse leaks have discovered that the bank had a very loose and illegal approach to keeping private accounts for its wealthiest clients. In order to maximize profits, they neglected the CDD procedures and opened accounts that stored dirty money and kept them open after the crimes of their owners emerged. A simple google search shows how corrupt the customers were, and yet the bank still allowed them to stash money on their accounts. 

One of the clients was Rodoljub Radulović, a Serbian securities fraudster who was sentenced by the US Securities and Exchange Commission and by a court in Belgrade for drug trafficking. His account was open after he was sentenced by the US commission. 

Another example is Venezuela’s former Deputy Minister of Energy, Nervis Villalobos. The bank had access to a report from 2008 detailing corruption allegations against the politician. Despite that, Credit Suisse opened an account for him in 2011.

The most shocking might be the case of the Bulgarian drug traffickers who laundered 146 million euros. The drug lords were depositing money in suitcases at bank posts. The accounts were not closed even after the assassination of drug lords and media publications about them.

Identity Verification

The whole process of opening an account can be long and tedious. More and more companies try to simplify the process and create a user-friendly onboarding. Part of the CDD process is identity verification. To facilitate the verification process businesses start to partner with identity verification platforms like Fully-Verified, which offers quick onboarding via identity verification backed with AI technology and compliance with regulations. Technologies that use artificial intelligence can help transform KYC and AML compliance to more customer friendly.

Businesses may choose from an automated verification option of verification in which the user goes through the process alone. Unlike others, Fully-Verifieds automated option records the whole process of the identity verification. 

The second option is a live video verification. During a video identification- people and their documents are verified live, on video, with real-human verification specialists. 

Both processes are backed by automated document and face recognition. The businesses receive all the details, including document pictures, user selfies, information extracted from documents, face recognition results, as well as audio and video recording.

Financial Fines and Reputational Damage

Swiss federal prosecutors are seeking more than 42 million francs ($61 million) in compensation from Credit Suisse, after a 14-year long investigation about allowing drug traffickers to launder millions of euros through the bank. But it’s not the first time that the bank has been under scrutiny for its practices. The Financial Industry Regulatory Authority has fined Credit Suisse $9 million for failing to comply with securities laws and rules designed to protect investors. Many financial institutions have been accused of similar actions, and have been punished for them, but so did Credit Suisse. Last year, the Financial Conduct Authority fined the bank over £147 million for failing to perform due diligence on their customers. But failing to comply with the AML procedures results not only in financial fines but also reputational damage. As a result of the leak, Credit Suisse lost about 3 percent of its value on the stock market.

When Switzerland has abandoned its well know neutral policy and joined in on the sanctions imposed on Russia it seemed that they are learning from their past mistakes. Credit Suisse however has started to try to cover up their orders to investors to destroy documents relating to its richest clients’ properties. The action was supposed to stop information leaking about a unit of the bank that has made loans to oligarchs who were sanctioned.

The reputation damage for the bank itself is not the only result of the leak. The whole country could be facing repercussions after the European parliament’s European People’s party raised the prospect of adding the country to a money-laundering blacklist. Such action could cause strong enhanced due diligence applied to transactions. Amongst countries that are on the blacklist are North Korea, Iran and Syria.

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Fully-Verified was created as answer to its founders collectively losing over $150 000 to various types of fraud in their eCommerce businesses.

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