Know Your Customer (KYC) is the term used by businesses for the process used to verify the identity of prospective customers to determine if the client is someone with whom they should be doing business. KYC laws were introduced as part of the Patriot Act that was passed after 9/11. Title III of the Patriot Act requires that financial institutions deliver two requirements to comply with KYC: The Customer Identification Program (CIP) and Customer Due Diligence (CDD). Non-financial companies, such as Wright Brothers Aircraft Title, use these guidelines to ensure that they are conducting business with trustworthy customers.
What are the KYC requirements for aircraft title and escrow companies? Because we accept money from customers, we need to confirm that it is coming from a safe and legal source. One way we can do this is by validating the reputation of the potential customer.
The Customer Identification Program
Customer Identification Programs (CIP) are a component of the KYC process. Financial institutions are held to the highest CIP standards, and they must implement a program that is appropriate to their size, location, and type of business. The CIP must be in writing and approved by the board of directors. Wright Brothers use the guidelines created for financial institutions to develop a process that is appropriate for our business. The CIP we use accurately identifies individuals who want to do business with us.
Identification is the first step in the due diligence process. Once you know who you are doing business with, you can determine if there are any factors about the individual or entity that require additional information gathering or other action.
Although there are a few software choices, Wright Brothers rely on Watchdog to run searches and provide reports. The following information is gathered for potential corporate customers:
- Identity of company – name, industry
- Location – physical address
- Identity of key personnel and principals
- Any negative information found in:
- The Office of Foreign Assets Control (OFAC) at the US Treasury Department
- The System for Award Management (SAM) US Federal Government database of entities that file to do business with the US Government
- International company profiles from the US Embassy
We learn about corporate representatives or individual buyers not associated with a corporation by reviewing the following information:
- Name, address, telephone numbers
- Country – check for Embargo List of countries (sales prohibited) and sanctioned countries
- Official identification cards of signees, such as a passport and driver’s license
- News database search (run a Google search)
Customer Due Diligence and Enhanced Due Diligence
Customer Due Diligence (CDD) refers to the risk management steps taken to comply with KYC. The process uses the CIP information to assess your potential customer’s risk profile. Enhanced Due Diligence (EDD) is required if the customer is high risk.
People requiring EDD include:
- politically exposed persons
- accounts that deal with high-risk countries
- accounts that deal with high risk activities
Wright Brothers conducts CDD before we consider beginning any business relationship. It’s also prudent to do periodic checks to see if customers move into higher risk categories. We keep all KYC records and reports on hand in digital format.
Third party vetting solutions
How can you be sure your potential customer is NOT involved in nefarious activities?
Third party solutions are helpful, but that doesn’t mitigate our responsibility. We must understand the resource’s best practices to be sure they are aligned with the aircraft industry requirements. In addition to Watchdog reporting, we also receive information from banks, lawyers and auditors. From this, open scoring models are developed that apply risk characteristics, such as the customer type, geographic profile, and product usage.
As an organization involved with monetary transactions, Wright Brothers takes KYC rules seriously. The processes we have in place are designed to keep the skies clear of dishonest aircraft owners.