Why “Know Your Customer” is so important for exporting companies
KYC is the abbreviation for “Know your Customer”. This refers to the need or desire to know more about one’s customer or supplier. Because as many export or shipping employees know, it is not always advantageous to have this knowledge in the export process. Simply knowing about the actual end recipient or a dubious middleman can lead to customs and criminal consequences. To pre-empt “not knowing”, more and more global sanctions and procedures are designed to require companies to check who is involved in the trading partner’s business and whether they may be on one of the relevant lists. An example of this is the Iran entries on the U.S. Specially Designated National List (SDN list). Here, not only is direct delivery or payment to listed addresses prohibited, but also to non-listed companies if they are more than 50% owned or controlled by a listed person or company. As a result, one may not only check for the SDN list, but must expand the address search to include all companies that have a corresponding ownership or control percentage of a listed address. As of November 5, 2018, the second round of U.S. Iran sanctions will go into effect, which will then include the SDN list. Machine-readable lists of holdings are not available free of charge for global trade. An inexpensive but not always practical option is to require the contractual partner to provide proof of current shareholdings for each transaction. This will probably only work for suppliers. Alternatively, mostly only large companies can afford the relatively expensive data services of Dow Jones, for example, with the SOR package (Sanctioned Ownership Relations), which contains two lists of company shareholdings above 50% and above 10%. Another alternative is offered by Bureau van Dijk with the orbis database, which also provides the required beneficial owner identification (over 50% share). But in both cases, the addresses determined this way still need to be checked against the SDN list. In fact, however, the KYC notion has not only arisen as a result of the sanctions regulations. In finance and banking, this description has been applied before. In the examination of credit default risks or in the examination of acquisitions/participations via possible straw men, the existing participation relationships are also looked at very closely. The legislator also wants to prevent criminal transactions and money laundering by requiring credit institutions to also check the persons involved in the company against the sanctioned party lists and the PEP lists (politically exposed persons), which are only available for a fee. This article is intended to provide only a brief initial insight. If any of the following apply to your company, you should consider appropriate software for screening your business partners. Checklist – Do I need a KYC solution?
- Do I supply goods with a US share of more than 10% to other companies? (US Patriot Act, Bank Secrecy Act)
- Are you a provider of gambling services?
- Do you accept cash payments of EUR 10,000 or more?
- Do you engage in occasional transactions involving transfers of funds (including financial transfers) in excess of 1,000 EUR? (New: entered into force with the 4th version of the Money Laundering Act on July 9, 2018. However, hardly conceivable for us that this will be followed across the board).
In all of the above cases, you must collect information during customer acceptance for transactions with natural persons and legal entities and their beneficial owners and perform a logged sanctioned party list screening of all beneficial owners in an audit-proof manner. If you are affected by this, please feel free to contact us so that we can offer you the appropriate automated solution.