Implementing innovative customer due diligence: proposal for universal model

DOIhttps://doi.org/10.1108/JMLC-01-2020-0007
Date25 March 2020
Pages871-884
Published date25 March 2020
AuthorPavel M. Shust,Victor Dostov
Subject MatterAccounting & 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 identication-verication-conrmation of identity
(IVCid) model that can be used to retroactively analyze the existing customer identication 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 identies 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 identication programcontains three elements:
identication (collectionof information), verication (checking the veracity ofinformation) and conrmation
of identity (linkingthe information to the individual). The accuracy of thismodel is conrmed 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
nancialinclusion.
Practical implications The IVCid modelallows for modularapproach 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 nancial inclusion.
Originality/value This paper proposes the rst 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,
Verication of identity
Paper type Research paper
1. Introduction
Prohibition on anonymous accounts goes back to the rst edition of Financial Action Task
Force (FATF) Recommendations in 1990. The concept has greatly evolved since. Now, the
nancial 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 nancing (ML/TF) risks associated with a customer.
A subset of the CDD is a process customarily called Customer Identication 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
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1368-5201.htm

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