Customer identification

AUSTRAC has released guidance to banks and superannuation funds to support people who have difficulties producing standard identification documentation to access the financial services they need.

The guidance seeks to balance the requirement for gathering know your customer (KYC) information with a flexible and compassionate approach to customer identification processes.


Know your customer (KYC) requirements

Entities that report to AUSTRAC are required to have an anti-money laundering/counter-terrorism financing (AML/CTF) program, which includes know your customer (KYC) procedures.

KYC and being familiar with a customer’s typical financial transactions helps to make an entity aware of any unusual or suspicious activity and reduces the risk of the organisation being exploited for money laundering or terrorism financing purposes.

The procedures used must be based on the level of money laundering/terrorism financing (ML/TF) risk that different customers pose. In addition to checking a customer’s identity, the procedures can include checking details of beneficial ownership.


A flexible approach to customer identification

Some people may face barriers or difficult circumstances that mean they cannot access or obtain standard identification documents, or they may have inconsistent personal details across their documents, such as name or date of birth.

AUSTRAC states that for customers who are affected by such circumstances, reporting entities can develop and apply a flexible approach to customer identification requirements.

People that may be affected include:

  • Aboriginal and Torres Strait Islander peoples located remotely or affected by the issues listed below.
  • People and businesses affected by natural disasters such as floods or bushfires.
  • People affected by family and domestic violence.
  • People experiencing periods of homelessness.
  • People who are or have recently been in prison.
  • Refugees, asylum seekers and recent migrants to Australia (including people from culturally and linguistically diverse backgrounds).
  • Intersex, transgender and gender diverse people.
  • People living in remote areas.
  • People who have difficulty providing identification due to health or ageing-related reasons.

AUSTRAC states that a flexible approach to customer identification should only be used for people who have been assessed as posing a low ML/TF risk.


Alternative identification documentation

The Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No.1) 2007 (“AML/CTF Rules”) provides entities with the flexibility to use the following alternative identification documentation:

  • An original primary photographic identification document.
  • An original primary non-photographic identification document.
  • An original secondary identification document.

While the AML/CTF Rules do not specify additional alternative documents and options to verify the customer’s identity, examples may include:

  • Referee statements – for example from a police officer, a religious or community leader, a counsellor, or an employer.
  • Government correspondence, including from state and territory correctional service agencies where it involves persons in prison or recently released from prison.
  • A community ID or indigenous organisation membership card (for Aboriginal and Torres Strait Islander peoples).
  • A customer’s self-attestation (statement) of their identity as a last resort, in instances of assessed low ML/TF risk.


Obligations on entities employing a flexible approach

Entities need to assess a customer’s ML/TF risk profile in accordance with their risk-based systems and controls, and considering the person’s particular circumstances, before deciding whether it is appropriate to offer a flexible approach to customer identification.

AUSTRAC states that entities taking a flexible approach must:

  • Decide what alternative documents are appropriate based on the level of ML/TF risk associated with the customer, the likely transactions, and the services requested.
  • Make and keep a record of decisions and outcomes, including the customer’s particular circumstances, what actions were taken to identify the customer, and what information was used.
  • Monitor any unusual behaviour or transactions as part of the ongoing customer due diligence obligations, and where necessary, verify additional KYC information.


Key takeaways

Having comprehensive know your customer (KYC) procedures and effectively verifying a customer’s identification is critical in ensuring that organisations are not exploited to facilitate money laundering or terrorism financing. However, certain people may have difficulties producing the standard identification documentation required to access financial services. AUSTRAC’s new guidance shows that in such cases, as long as the person poses a low money laundering/terrorism financing risk, a flexible approach to customer identification can be taken.

Nyman Gibson Miralis provides expert advice and representation in complex cases involving customer identification procedures and money laundering investigations.

Contact us if you require assistance.