3.2.1.3 Nature of the Customer’s Business and Nature and Purpose of the Business Relationship
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. This element of CDD will have important implications for the customer risk rating. This is particularly true of the nature of the customer's business, which will likely be the critical determinant of risk for customers of the types addressed in this Guidance.
3.2.1.3.1 Nature of the Customer’s Business
Understanding the nature of the customer's business involves first i) identifying that the customer is a participant in a higher-risk sector; and ii) collecting all the information necessary to assess the risk factors for that specific customer type, as described in section 3.1 above. Customers may not identify themselves explicitly as DPMS or real estate sector participants. In some cases, the nature of the customer's business will be clear based on the customer's own statements; in others, the LFI may need to ask additional questions to ascertain whether or not the customer carries out any of the qualifying activities. For example, an importer/exporter may qualify as a DPMS if it trades in precious metals and stones among other products, or a department store may qualify if it sells fine jewelry.
Following the determination of the customer's sector, the LFI should collect the information necessary to understand the products and services the customer offers, where it operates, and who its customers are. The exact information collected will depend on both the nature of initial findings and on the risk level of the entity. For example:
• Company A is a large commercial real estate broker licensed in Sharjah and supervised as a DNFBP by the Ministry of Economy. Company A applies for a general purpose business account with Bank C, an LFI. Bank C interviews Company A regarding its business activities and customer base, and asks Company A to supply a copy of its institutional risk assessment and its CDD and STR policies.
• Company B, a small business based in Dubai, seeks to establish a checking account with Bank C, an LFI. Company B represents that it primarily sells furniture and curios, but in response to questions from Bank C during the CDD process discloses that it sells gold and silver coins and also that it accepts cash payments. Company B is not licensed as a DPMS and is not registered by the Ministry of Economy. Bank C decides to make an unannounced site visit to Company Band discovers that gold objects make a up a large part of its inventory. Bank C declines to consider opening the account until Company B is licensed and registered as a DPMS.
3.2.1.3.2 Nature and Purpose of the Business Relationship
The risk to which the LFI may be exposed can vary based on the purpose of the account and the types of financial products and services the customer wishes to use. Nevertheless, if other risk factors are present a customer may still qualify as high risk even if they use only low-risk products and services.
• Certain aspects of a customer's business may be higher risk than others. For example, an account used for payroll may be lower risk than an account used to pay suppliers or that receives payments directly from customers.
• Certain LFI products and services may expose the LFI to higher risk. These include cash management services or large-scale cash deposits, and international wires, especially wires to or from high-risk or secrecy jurisdictions. These services are higher risk because they facilitate rapid movements of value across borders, or (in the case of cash) because they are conducive to anonymity. The LFI's entity risk assessment should identify its higher-risk products and services, and a customer that intends to use such services should be risk-rated accordingly.
For example:
• Company X is a small DPMS operating in the Dubai Gold Souk that applies for a general purpose checking account with Bank C, an LFI. Company X tells Bank C that it sells gold jewelry. It claims that it does not accept cash and has not registered as a DNFBP, but tells Bank C to expect weekly cash deposits. The relationship manager visits the store and observes a sign by the cash register saying “Payment by Cheque or Credit Only.” Bank C decides to prohibit cash deposits into the account with prior authorization, and to restrict such deposits to a low monthly total.
3.2.1.3.3 Developing a Customer Profile
Businesses, including those in the DPMS and real estate sectors 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 small DPMS is likely to be completely different from that of a large- scale commercial developer. At the same time, specific businesses 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.
3.2.1.3.4 EDD: Customer’s Business and the Business Relationship
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 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 the customer has no clear business activities that would justify its expected to use of the account.
EDD on the business activities and account use of business like DPMS and real estate sector participants can involve the following:
• Requiring the customer to provide invoices documenting incoming and outgoing transfers; • 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.