Companies of all sizes and in all industries, including automotive recycling, can benefit from knowing their customer or supplier and avoid working with untrustworthy or illegal companies.
Educating yourself is important so that you can never be taken advantage of when it comes to selling scrap catalytic converters. With the increase in precious metals prices and the surge in catalytic converter theft it is more important than ever that you know your customers and your suppliers.
In recent years, authorities in the US and abroad have increased their focus on modernizing and enforcing Anti-Money Laundering (AML) and terrorism financing regulations. As part of these efforts, the US’s Financial Crimes Enforcement Network (FinCEN) proposed Know Your Customer (KYC) requirements in 2014, which became law in 2016.
KYC procedures are critical to helping you analyze and monitor risky customers. And, KYC is a legal requirement to comply with AML laws.
Why Who You Sell To Is So Important?
Unfortunately, in auto catalyst recycling, many unethical and criminal scandals abound. Converters get altered and sold under the guise of being more valuable than they are; full truckloads of scrap catalytic converters get paid for and never delivered; the money used to pay you for your converters can be money that is being “laundered.”
Act before you are a victim or become part of an audit or investigation.
Create a KYC Process
Each company is different, but the KYC process has similarities. Are you ready to Know Your Customer?
Step #1: Have Customers Fill Out a KYC Form
When you are considering working with a potential company, be upfront about your KYC policy. Say that you are interested in being compliant with AML laws and must work with reputable companies to protect yourself and your company from any implication. Have them fill out a KYC Form either in paper or electronically to begin assessing the risk.
Step #2: Develop a Customer Identification Program (CIP)
Develop a CIP that outlines how you will verify customers’ identities. Include what information you will ask potential customers for and how you will go about verifying the information provided.
Step #3: Look at Customer Due Diligence (CDD)
CDD is an important element in managing risks. With CDD, you must identify and understand your customers’ activities. Then, you can use the information you find to assess how risky they are to your business.
Given the consequences of non-compliance (evidenced by unprecedented AML-related penalties levied against the industry in the past few years including jail time), companies should begin their implementation efforts as soon as possible, based on the proposed requirements and industry best practices.
While FinCEN’s proposal does not specify risk factors that must be considered in assessing a customer-entity’s AML risk, companies should consider the following questions:
- How complex is the customer’s ownership structure? Anyone with more than 10% ownership should be recorded.
- Is the customer operating in a heavily regulated industry? No? This is high risk.
- Is the customer’s home or neighboring jurisdictions subject to sanctions, or home to terrorist organizations?
- Do the customer’s home jurisdiction lack effective AML regulations or have high levels of corruption?
- To what extent is the customer’s business cash-based?
- Has the customer taken any measures to mask the identity of its shareholders?
- Is the relationship with the customer face-to-face?
Step #4: Continue to Monitor Customers
Now, you may think your job is done once you assess the customer’s risk and verify their identity. However, KYC is an ongoing process. Just because a customer passed your KYC test does not mean they should be off the hook.
Continue to monitor each of your customers for risky activity. Some factors you should continue keeping an eye on include: spikes in activities, patterns in unusual behavior or illegal activities.
If you find a current or potential customer has suspicious activity, terminate the business relationship as soon as possible. Depending on your business, you or your bank can report the activity. Banking institutions can file a Suspicious Activity Report (SAR) to report unusual customer activity.
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Becky Berube serves the recycling community as President of United Catalyst Corporation, Co-Chair of the Automotive Recycling Association’s Events Advisory Committee, and is an ExCom Board Member of the International Precious Metals Institute. She can be reached at 864-834-2003 or by email at firstname.lastname@example.org.