Customer identification in currency exchange companies as per FATF recommendations

Published date19 December 2019
Date19 December 2019
AuthorJoel Harry Clavijo Suntura
Customer identication in
currency exchange companies as
per FATF recommendations
Joel Harry Clavijo Suntura
Department of Private Law, Universidad Técnica del Norte, Ibarra, Ecuador
Purpose The purpose of this paper is to determine if customersdue to diligence measures laid down in
Financial Action Task Force (FATF) Recommendation no. 10 can be applied to customers of currency
Design/methodology/approach Currencyexchange nancial entitiesundertake nancial transactions
with occasionalcustomers, for thisreason, this research work isaimed at carrying out a study of thecontent of
FATF Recommendationno. 10 regarding the applicabilityof due diligence measures to occasional customers.
For thispurpose, the analytical and interpretativemethods havebeen used.
Findings FATF Recommendation No. 10 about customer due diligence measures has been
designed primarily for nancial entities with regular customers, however, most customers of nancial
currency exchange companies are occasional customers. For such nancial entities, customer
identication is mandatory only for transactions above 15,000 USD/EUR, leaving a potentialrisk of
money laundering for nancial transactions below that threshold. Furthermore, within currency
exchange companies, risk factor analysis and customersidentity verication are performed only on
regular customers.
Originality/value Customer due diligence measuresin currency exchange nancial entities should not
be subject to the transactionthreshold. Moreover, it is necessary to adopt a centralized controlsystem to avoid
currencyexchange companies infringement of their controlsystems.
Keywords Money laundering, Customer identication, FATF, Currency exchange companies,
Due diligence measures, Know your customer
Paper type Research paper
1. Introduction
Among the Recommendations of the InternationalFinancial Action Task Force (FATF) on
the prevention of money laundering,it is established that nancial institutions have to apply
due diligence measures. In this context, it is essential to rst identify and then know the
customer (Managers and Sullivan, 2015) to prevent and control nancial transactions
involving money laundering(Toso Milos, 2017;Aliaga Mendez, 2010).
First of all, it should be determinedwhether currency exchange entities are consideredas
nancial entities. According to the provisions of the European Directive of 2015 on the
prevention of money laundering, article 3 (2) states that currency exchange entities are
considered as nancial entities.
Money laundering has been carried out in the traditional sectors of banking but it has
extended its eld of actionto other sectors with less control (Unger and Den Hertog, 2012).
In the commercial transactions sector of currency exchange, cash capital outow
facilitates the conversion of money from illegal sources into a solid, stable and
internationally recognized currency such as the funds can be assumed as legitimate in
another state (BlancoCordero, 2014;Caparros Fabián, 2014).
Journalof Money Laundering
Vol.23 No. 1, 2020
pp. 96-102
© Emerald Publishing Limited
DOI 10.1108/JMLC-05-2019-0036
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