Financial institutions and other businesses may be subject to Anti-Money Laundering (AML) and Know Your Customer (KYC) requirements. The Bank Secrecy Act, as amended by the USA Patriot Act, sets forth procedures by which such institutions are required to vet their customers and know where their funds are coming from. These procedures are designed to limit the ability of criminals and terrorists to launder money through the financial system.
The Know Your Customer (KYC) process is one in which a business or individual provides proof of his or her identity to a financial institution, escrow agent or other services provider. The goal of the Know Your Customer laws is to assign to the person being reviewed a risk score based on whether that person is on any one of numerous lists of people known to be involved in criminal activity. There are software packages that support this type of investigation, which pull together background information about individuals in a comprehensive format.
Part of complying with these laws requires ongoing reviews of internal policies and procedures, and the appointment in some cases of a Compliance Officer charged with overseeing these types of reviews and ongoing compliance matters.