Implementing innovative customer due diligence: proposal for universal model
| DOI | https://doi.org/10.1108/JMLC-01-2020-0007 |
| Date | 25 March 2020 |
| Pages | 871-884 |
| Published date | 25 March 2020 |
| Author | Pavel M. Shust,Victor Dostov |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial compliance/regulation,Financial crime |
Implementing innovative
customer due diligence:
proposal for universal model
Pavel M. Shust and Victor Dostov
Russian Electronic Money Association, Center for Distributed Ledger Research,
Moscow, Russian Federation and Saint Petersburg State University,
St. Petersburg, Russian Federation
Abstract
Purpose –The purpose of this paper is to present the identification-verification-confirmation of identity
(IVCid) model that can be used to retroactively analyze the existing customer identification programs and
devise new onesthat can be used in face-to-face or non-face-to-face environment.
Design/methodology/approach –This paper outlines themain elements of the customer due diligence
(CDD) process and identifies those whichmay present a barrier to the customers. It then outlines the IVCid
model. The modelis used to analyze existing CDD approaches in physicalpresence, using reliable databases,
biometricsand electronic signatures.
Findings –The IVCid model suggests that any customer identification programcontains three elements:
identification (collectionof information), verification (checking the veracity ofinformation) and confirmation
of identity (linkingthe information to the individual). The accuracy of thismodel is confirmed by the analysis
of the existing CDD proceduresin some countries.
Research limitations/implications –This paper looks at a limited number of practicalcases of CDD
implementation.Further research might be needed to assess the strengths and weaknessesof biometric-based
or e-signature-based solutions. Research might be needed to establish links between the IVCid model and
financialinclusion.
Practical implications –The IVCid modelallows for “modular”approach for the CDD procedures.It also
underlinessome risks associated with current CDD models.
Social implications –The IVCid model can be used to devise the CDD procedures that more effectively
contributeto financial inclusion.
Originality/value –This paper proposes the first universalmodel for the CDD procedures that works for
both face-to-faceand remote scenarios while also being technology-and business-neutral.
Keywords Financial inclusion, Model, Customer due diligence, Biometrics, AML/CFT,
Verification of identity
Paper type Research paper
1. Introduction
Prohibition on anonymous accounts goes back to the first edition of Financial Action Task
Force (FATF) Recommendations in 1990. The concept has greatly evolved since. Now, the
financial institutions are expected to implement detailed customer due diligence (CDD)
programs to make sure thatthey have an in-depth understanding of their client. Apartfrom
providing valuable informationto law enforcement agencies, if needed, the CDD also allows
to assess money laundering/terrorism financing (ML/TF) risks associated with a customer.
A subset of the CDD is a process customarily called Customer Identification Program
(CIP)[1] in short, makingsure the person is one he/she says at the onboarding stage. The CIP
is a highly technical procedure and poses a challengefor the developing countries and their
Customer due
diligence
871
Journalof Money Laundering
Control
Vol.23 No. 4, 2020
pp. 871-884
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-01-2020-0007
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