4.3.3. Understanding the Purpose of the Account and Nature of the Customer’s Business

يسري تنفيذه من تاريخ 7/6/2021

For all customer types, LFIs are required to understand the purpose for which the account or other financial services will be used, and the nature of the customer’s business. This step requires the LFI to collect information that allows it to create a profile of the customer and of the expected uses to which the customer will put the LFI’s services. Because almost all legal persons and arrangements are created to make it easier to do business, invest assets, or engage in some form of organized activity, this element of CDD is critical to understanding customers who are legal persons and arrangements.

Legal persons and arrangements engage in an extremely wide variety of financial activity, potentially a wider variety than individual customers are likely to display. The activity profile of a cash-intensive business such as a taxi firm will be completely different from that of an investment vehicle or of a waqf that collects revenues from real property and distributes them to charitable causes. But specific legal person and arrangements customers are also likely to engage in patterns of activity that remain constant from month to month and year to year. Understanding the purpose of the account allows LFIs to develop expected patterns and compare them to actual behaviour. For example:

	•	A taxi company is likely to see substantial cash inflows and make regular, predictable transfers to cover payroll and to a limited set of suppliers (e.g. mechanics, gas stations). If a taxi company starts making transfers to a foreign jurisdiction, even a low-risk one, that behaviour may not fit the expected pattern and if so would require investigation.
	•	A waqf managing an apartment building should receive very regular monthly rent payments from residents, whether by cash, check or Automated Clearing House. The waqf should have regular expenses for maintenance and property taxes, as well as predictable payments to the beneficiaries of the waqf. If the waqf suddenly doubles its cash deposits, the LFI will need to investigate to understand why the customer’s behaviour has changed.

Understanding the nature of the customer’s business can be a straightforward process. Most legal person customers will be engaged in familiar, easily identifiable activities in recognized sectors: manufacturing, retail, agricultural production, etc. In other cases, it may not be so simple. A legal person customer may be formed solely to facilitate a complex financial transaction. In other cases, the legal person may not have fully determined their business model or may plan to engage in a business activity that is out of keeping with the owners’ and managers’ resources and expertise, or that don’t seem to make economic sense. Finally, a customer may try to conceal its actual business; for instance, a company that is engaged in computer hacking and fraud may describe itself as a software engineering firm or a call centre.

As LFIs advance efforts to understand their customer’s business and financial activities, they should consider whether aspects of the customer profile require EDD. The following are some situations in which EDD may be appropriate:

•	The customer has business or other ties to high-risk jurisdictions (if the customer or its beneficial owners are based in a high-risk jurisdiction, EDD is mandatory).
•	The customer is engaged in a high-risk sector. High-risk sectors can include, but are not limited to:
	o	Sectors with high flows of cash;
	o	Other financial sectors (e.g. customers who are MSBs or payment processors);
	o	Sectors that involve the import or export of dual-use technology (technology that may be used for proliferation);
	o	Sectors that are at high risk for human trafficking (bars and dance venues; construction; cleaning);
	o	Charitable activities, especially those involving high-risk jurisdictions.
•	The customer is a state-owned-enterprise (SOE). SOEs engage in a wide variety of business activities; their close relationship to government and government officials means that they may be at higher risk for corruption-related transactions.
•	The customer intends to use high-risk financial products and services, such as bulk cash services or purchase and exchange of virtual assets.
•	The LFI does not fully understand the customer’s business model or activities. Customers that generate revenue, but that have no apparent business activities, are perhaps the highest risk.

When conducting EDD on the business activities and account use of legal persons and arrangements, LFIs should use techniques designed to manage the specific risks of the customer. These may include, but are not limited to:

	•	Requiring the customer to provide invoices documenting incoming and outgoing transfers;
	•	Requiring the customer to provide its Economic Substance Report;
	•	For customers operating in licensed sectors, requiring the customer to provide proof that it has a valid business license;
	•	Inspecting payroll documents and other business records;
	•	Visiting the customer’s business premises and interviewing its personnel;
	•	Requesting a reference from a current customer or other well-known firm with which the new customer claims to do business, or which operates in the same sector as the new customer.