Practical Understanding of CDD Investigations

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Questions and Answers

What is the first part of a CDD investigation according to the text?

Transaction risk

Identification and Verification (correct)

Business activities

Purpose and nature of relationship

Which components are specifically applicable in the investigation of entities?

Transaction risk, Country risk, Source of Funds

Ownership & Control structure, Sustainability risk, Tax avoidance risk (correct)

Business activities, Purpose and nature of relationship, Adverse Media

Identification and Verification, Purpose and nature of relationship, Country risk

What is NOT included in the investigation on individuals according to the text?

Sustainability risk

Purpose and nature of relationship

Country risk

Tax avoidance risk (correct)

Which department in a company investigates entities according to the text?

Business department Signup and view all the answers

In a CDD investigation, what type of activity involves examining how an individual earns money?

Business activities Signup and view all the answers

Which part of a CDD investigation covers where the funds are coming from?

Source of Funds Signup and view all the answers

What is the purpose of investigating the country risk in the context of financial transactions?

To understand where the client conducts business activities Signup and view all the answers

Why is it significant for a baker to withdraw a large sum in cash every month?

It raises concerns as it is unusual for a bakery in northern Europe Signup and view all the answers

In the context of Source of Funds, what information is essential to investigate?

The pattern of funds being transferred Signup and view all the answers

What does Source of Wealth primarily aim to determine?

The legitimacy of a client's wealth accumulation Signup and view all the answers

How can an organization chart be used in assessing tax risk?

To evaluate potential tax avoidance possibilities Signup and view all the answers

What does E.S.G stand for in the context of financial investigations?

Environment, Social, Governance Signup and view all the answers

How can Adverse Media screening be beneficial in client assessments?

To identify if a director holds a political role Signup and view all the answers

Why is investigating Adverse Media important in financial assessments?

To screen for any negative news about the client Signup and view all the answers

What aspect does Adverse Media screening specifically aim to uncover?

Negative news or information about clients Signup and view all the answers

In financial investigations, what does the term PEP stand for?

Prominent Political Exposed Person Signup and view all the answers

What is the purpose of the ID&V process?

To verify the identity and confirm the existence of the customer Signup and view all the answers

What is the role of a Pseudo UBO?

To be responsible for the day-to-day management of the company Signup and view all the answers

What is the importance of the Business Activities section?

To understand the customer's income generation Signup and view all the answers

What is the role of the Product & Services section?

To determine the products and services the customer gets from the company Signup and view all the answers

What is the purpose of Transaction Risk?

To look at outbound transactions to Counterparties, types of transactions and transaction patterns Signup and view all the answers

What does the Ownership & Control structure deal with?

To understand the customer's organizational structure Signup and view all the answers

What is the purpose of Purpose and Nature?

To describe why the person or entity is a customer at the institution Signup and view all the answers

What is the importance of the Ultimate Beneficial Owner (UBO)?

To be the responsible party in case of integrity issues Signup and view all the answers

What is the purpose of recording the Chamber of Commerce extract or passport information?

To verify the identity of the customer Signup and view all the answers

What is the role of the employee of the Act on the prevention of money laundering and financing of terrorism mandatory institution or external third party with gatekeeper function?

To verify the identity of the customer Signup and view all the answers

Study Notes

CDD Investigation Structure

CDD is split into two main parts: Natural Persons (investigating individuals) and Business Department (investigating entities)

Identification and Verification

First part of the CDD investigation
Verify client's existence and identity
Record information from Chamber of Commerce extract (for companies) or passport (for individuals)
ID&V process can be completed and confirmed automatically or by an employee/external third party

Purpose and Nature of Relationship

Describe why the person or entity is a customer at the institution
Ask questions like: does it make sense for a customer located in another country to purchase certain products and services here?

Ownership and Control Structure

Deals with the customer's organizational structure (only applies to entities)
Get information from the customer and partially verify using public sources
Write out the organizational structure and indicate obstacles encountered
Identify the Ultimate Beneficial Owner (UBO) or Ultimate Beneficial Owner (Pseudo UBO) if necessary

Business Activities

Important section to form a customer picture and conclude whether the other sections fit the customer profile
Write down what the client does to generate income
Describe any certifications, associations, or compliance policies

Product and Services

Not an unimportant part of the CDD investigation
Determine what products and services the client gets from the company
Ask questions like: do these particular products and services fit the customer profile?

Transaction Risk

Looks at outbound transactions to Counterparties, types of transactions, and transaction patterns
Ask questions like: does it fit within the customer profile?

Country Risk

Investigate the countries to which outbound transactions go and the countries in which activities take place
Ask questions like: is it appropriate for the customer to transfer funds to a particular high-risk country?

Source of Funds

Research the customer's income
Look at the contra account from which the client transfers funds
Ask questions like: from which financial institution does it come? What is the pattern of the funds being transferred?

Source of Wealth

About the income of an Ultimate Beneficial Owner
Want to know how that person got their wealth to avoid mixing criminally earned money with legitimately earned money

Tax Risk

Deals with the possibility of tax avoidance
Use the organization chart and other available information to identify potential risks

Sustainability Risk

Investigate whether there may be human trafficking, environmental crimes, human exploitation, and carbon monoxide emissions
Describe using public information and information from the client what the client's policy and vision is regarding sustainability and which measures are taken

Adverse Media

Screen the client to see if there is any bad news about the client
Use a system and sometimes Google search strings for this purpose
If there is bad news, perhaps according to the policy it can be mitigated

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Description

Learn about the structure of a Customer Due Diligence (CDD) investigation and its main components. Discover how CDD is divided into two main parts focusing on individuals and business entities, along with the common sections involved in the process.