Know-your-customer programs aren’t just for banks

To help fight all kinds of white collar crime and terrorism, federal laws and regulations require banks and other organizations to “know” their customers. Know-your-customer (KYC) means verifying customer identities and assessing risks associated with them. But even if your company isn’t required to adopt such programs, KYC can be beneficial.

What’s involved?

As part of the KYC processes, financial institutions verify customers’ names, addresses and dates of birth. They then check them against lists of known criminals. In addition, they monitor transaction trends and high-risk accounts to determine their risk and whether they should file a suspicious activity report with the government. Customer due diligence techniques support KYC programs by digging deeper. For example, a bank might use enhanced due diligence for high-transaction-value accounts or accounts that deal with high-risk activities or countries.

Companies that export products must be careful not to sell to customers on certain lists maintained by the federal government. Exporters also are expected to review all information they get about customers to ensure that nothing waves any red flags.

Not your job?

Even if you’re not in the financial services industry and don’t sell products overseas, it pays to understand who your customers are. Performing credit checks, for example, can help prevent your business from falling victim to “phoenix” companies that try to profit from bankruptcy.

Creating a comprehensive history of each customer’s credit limits and transactions helps identify your top customers. This may not expose fraud or money laundering, but you can assess how vulnerable you are, should you lose one or a few of your biggest customers.

Analyzing customers’ purchasing behavior lets you to identify cross-selling and up-selling opportunities — along with any irregularities that could indicate suspicious activity. If a customer with a long record of annual purchases suddenly begins placing monthly orders, for example, you should delve deeper. The change may signal nothing more than your customer landing a large new account, but it also could be a sign that someone in your company is cooking the books.