Understand what is a KYC and a Customer Due Diligence (CDD)

What is a KYC or a CDD? How does this apply to an individual?

Financial Services Providers such as Investment Professionals, Insurance Companies, banks or Designated Non-Financial Business Professionals (DNFBP) like Real Estate Agents, Jewellers, Notaries and lawyers amongst others have all, at some point in time, been faced with the same question from their respective clients and have had to explain the reasons and rationale to their clients about what is a KYC? And How does this apply to them?

KYC means Know Your Client. KYC can also be referred to as CDD means Customer Due Diligence.

This entails that Financial Service Providers and DNFBP have the obligation to know its clients and ensure that the Client is a respectable and diligent person / corporate structure before entering into any transaction with him or her.

Most of these sectors of activities have been identified as vulnerable to money laundering crimes.
What your Investment Manager or your Banker or your Real Estate Agent is asking you, is not to disclose information that they will transfer to the Government Authorities such as the Mauritius Revenue Authority nor is he or she is so curious that he or she wants to know your personal affairs.

Your Investor Manager, Bank or Real Estate Agent is only asking you to assist him or her to deliver his or her obligations imposed by law.

Financial Services Providers and DNFBP are responsible by law to put in place an Anti-Money Laundering Program and measures to counterfeit the financing of terrorism (hereinafter referred to as AML Program) and this obligation goes to root of the authority to operate granted to them by the Regulators (Financial Services Commission, Bank of Mauritius and the Financial Intelligence Units amongst other).

99% of the people or corporate structures wanting to do business, are not and will never be involved in criminal activities.

Anti-Money Laundering and Terrorism Financing legislations have been adopted worldwide to cater for these fewer criminals which uses these vehicles to launder the money derived from criminal activities.

The purpose of these measures is to stop criminals from using Financial Service Providers and Designated Non-Financial Businesses and Professions (DNFBP) as vectors to clean money generated by the commission of a crime.

What is crime defined by the financial laws in Mauritius?

The Financial Intelligence and Anti-Money Laundering Act 2002 (FIAMLA) defines “crime” as an offense punishable by:

(i) penal servitude;
(ii) imprisonment for a term exceeding 10 days;
(iii) a fine exceeding 5,000 rupee.

It is highlighted however that this section of the FIAMLA extends the scope of its application beyond our borders. The scope of the offense is not only concern by offenses listed in the Mauritian Criminal Code which are committed in Mauritius, but a crime is also an activity, act or omission which is considered as a crime outside Mauritius but if it was committed in Mauritius would have constituted a crime.

For ease of illustration, a client who has a coffee shop in Amsterdam selling cannabis which is legal in Amsterdam will be considered under this section of law of having generated his funds from a crime as the selling of cannabis in Mauritius is still a crime.

Furthermore, people tend to believe the offence of money laundering are exclusively to the offences of drugs. Money Laundering offenses are not solely linked to drug offences.

Funds generated from the offences of tax evasion, fraud, theft, embezzlement and so on are also funds are derived or realised, in whole or in part, directly or indirectly from any crime, which constitute the element of money laundering.

In other words, any fund generated from a crime is the main element and starting point of the offence of money laundering.

We have to bear in mind that the offence of financing of terrorism may not have the same dynamic. The proceed for the financing of terrorism may not automatically be generated from a proceed of a crime.

We may have read about the financing of terrorism through drug or human trafficking but this is not the only way. Funds to finance terrorism may also derive from clean sources.

We all give to charity and most of the time do not follow the use made of our donations. Can our funds be used to finance the purchase of weapons to kill hundreds of people?

How is KYC and CDD linked to the Anti-Money Laundering Program?

KYC and CDD are one element of Anti-Money Laundering Program.

What is the Anti-Money Laundering Program?

Anti-Money Laundering (AML) Program entails more than providing an identity card and a utility bill.

Nowadays, Financial Service Providers and DNFBP are required to design, set up and implement an AML Program.

AML Program as per the requirement of the Regulators is an overall concept that Financial Service Providers and DNFBP whereby they are required to:

  • effect a KYC / CDD exercise consisting of verifying the identity of his client using reliable, independent source documents, data or information (National Identity Card / Passport). Identity includes the client’s name but also his / her address (Utility Bill of not older than 3 months);
  • verify that any person purporting to act on behalf of a customer is so authorised, and shall identify and verify the identity of that person;
  • identify the beneficial owner and take reasonable measures to verify the identity of the beneficial owner, using relevant information or data obtained from a reliable source such that the reporting person is satisfied that he knows who the beneficial owner is. The legal threshold for an ultimate Beneficial Owner is 20% and more of the ownership of a corporate structure;
  • understand and obtain adequate and relevant information on the purpose and intended nature of a business relationship or occasional transaction;
  • the source of fund or wealth of the individual. The source of funds of a person is the regular income that he/she generates and which allows him/her to show a legitimate source. This can take the form a salaries & wages, dividends or commissions whereas a source of wealth is linked to heritance, lottery gains or proceed from sale of property which more of an occasion and one-off gain of wealth by the client;
  • risk assessment for each client to ensure that they are able to identify and assess the type of client they are on-boarding.
  • Training of their staff on the AML CFT requirements and program that they have put in place.

What are elements of Risk Assessment of Client pertaining to AML / CFT?

The Financial Action Task Force whose recommendations have been adopted by the National Money Laundering and Terrorist Financing Risk Assessment of Mauritius (NRA Report). Some of the following criteria are type of risks which could be taken into account when doing a risk assessment exercise:

Origin of the individual

  • Persons or corporate structure who have been identified under the United Nations (Financial Prohibitions, Arms Embargo and Travel Ban) Sanctions Act 2019 (Terrorism Financing) as being connected or suspected of being connected to crimes linked to terrorist activities.
  • Persons from High-Risk Jurisdictions – jurisdictions whose level of compliance to the recommendation of the Financial Action Task Force are low or need to improve.
  • Mauritius used to be one of those countries until we were removed from the Grey List of the FATF at the beginning of the year.

Status of the individual

  • Politically Exposed Persons
  • They are individuals who are or have been entrusted with prominent public functions
  • Due to their position and influence, it is recognised that many PEPs are in positions that potentially can be abused for therefore the purpose of committing money laundering (ML) offences and related predicate offences, including corruption and bribery, as well as conducting activity related to terrorist financing (TF).

Nature of the business and activity

  • Cash Intensive which makes it difficult to separate any fund obtained from the legitimate source of business and any eventual funds which could be derived otherwise.
  • Designated Non-Financial Businesses and Professions (DNFBP)
    • dealers in precious metals or precious stones;
    • law firms, notary firms, or other independent legal businesses;</li
    • accounting, audit firms;
    • Corporate Service Providers
    • Person licensed to operate a casino, gaming house, gaming machine, totalisator, bookmaker and interaction gambling under the Gambling Regulatory Authority Act

Is the information on my KYC secured?

If you receive a list of questions from your financial service Provider or DNFBP, please do not feel exasperated or feel your privacy being invaded.

The Financial Service Provider and DNFBP are just doing a data / information gathering exercise in line with their legal obligations.

Your data is already protected by the Mauritian Data Protection Act 2017 and the person collecting and processing personal data has the obligation to protect and secure your data unless they are required to disclose under the Law.