By: Luis Gerardo Ramírez Villela
Know Your Customer (“KYC”) policies and procedures comprehend all applicable laws and regulations for verifying a customer's identity to prevent financial crime like money laundering and terrorism financing, amongst other practices that could affect the reputation and even the business operations of any regulated or non-regulated corporation.
Furthermore, having effective KYC policies would also allow regulated and non-regulated corporations to have a better understanding of their customers and suppliers, and provide valuable insights to carry out their business operations.
In Mexico, regulated corporations – such as banking and financial institutions – have specific laws and regulations for such purposes and they also must comply with the provisions of the Mexican Anti-Money Laundering Law [1] and the procedures established by the International Financial Action Task Force (Grupo de Acción Financiera Internacional).
The main considerations for KYC policies include the previous review of information and documentation, which would allow identifying any potential risk in entering any transaction with customers.
Such information and documentation include the following:
Individuals – Official identification, complete domicile address and proof of such domicile, tax identification, professional registration, email address, telephone number, etc.
Corporations – Articles of incorporation (and amendments thereunder), tax registration, registered office address, ownership structure and identification, organizational chart, legal representative information and documentation (applying mutatis mutandis the information requested to individuals), etc.
Additional risk factors must be considered in the evaluation of customers and suppliers, including (i) having officers or directors which are politically exposed, (ii) being resident in a country with high levels of corruption or money laundering, or (iii) being a mainly cash-based individual or corporation.
Besides complying with applicable laws and regulations, it is advisable to create internal policies for their identification and date collection, including policies related to risk management, transaction monitoring and code of ethics, which would need to be complied with by any and all employees of the applicable corporation.
Please note that although the standard practice is that all regulated companies must comply with all applicable provisions, nowadays it is important for all corporations to carry out customer and suppliers’ verification to avoid any potential conflicts in the future.
1 Federal Law for the Prevention and Identification of Operations with Illegal Proceeds (Ley Federal para la Prevención e Identificación de Operaciones con Recursos de Procedencia Ilícita).
