Managing High-Risk Customers in Accordance with Basel Committee Guidelines

C

The Basel Committee on Banking Supervision has issued guidance to banks regarding high-risk customers, which are individuals or entities that pose a greater risk of money laundering or terrorist financing. The guidance provides recommendations for banks to follow in order to mitigate the risks associated with these customers.

Option A, maintaining segregated records to enable easy inspection by law enforcement in case of a subpoena, is not a sufficient approach on its own. Although it is important for banks to maintain accurate records, this approach does not address the issue of mitigating the risks associated with high-risk customers.

Option B, assigning high-risk customers to specified private bankers for better monitoring of their offshore transactions, is a good approach to enhance monitoring. However, it may not be sufficient on its own, as private bankers may not have the necessary expertise to identify suspicious transactions.

Option C, performing enhanced due diligence including enhanced ongoing monitoring of the account activity, is the recommended approach. Enhanced due diligence includes obtaining additional information about the customer, such as the source of funds and the purpose of the account, as well as enhanced ongoing monitoring of the account activity to identify suspicious transactions. This approach allows banks to better understand the risks associated with the customer and to detect and report suspicious transactions to the appropriate authorities.

Option D, seeking approval from the board of directors before establishing the relationship, is not a recommended approach. While it is important for banks to have robust governance and oversight, seeking approval from the board of directors for each high-risk customer may not be practical or efficient. Furthermore, it may not be effective in mitigating the risks associated with these customers.