KYC Obligations

Introduction to Know Your Customer

The Know Your Customer (KYC) process is a cornerstone of anti money laundering (AML) regulations, designed to help law firms, professional service providers, and financial institutions verify the identity of their clients. By implementing robust KYC checks, firms can ensure that they only engage with legitimate individuals and entities, reducing the risk of money laundering, terrorism financing, and other financial crimes. The KYC process involves collecting and verifying detailed information about a client’s identity, business activities, and risk profile. This not only helps law firms manage client funds securely but also fosters trust and transparency in every business relationship. Effective KYC procedures are essential for compliance with both national and international regulations, safeguarding the integrity of the firm and the wider financial system.

Legal Requirements for KYC

Law firms are subject to strict legal requirements when it comes to implementing KYC procedures. These requirements are set out in various national and regional regulations, all aimed at combating money laundering and ensuring the integrity of the financial system. For example, in the UK, law firms must comply with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, which mandate comprehensive KYC checks for all clients. In the United States, the Bank Secrecy Act (BSA) and the USA PATRIOT Act require law firms to implement AML and KYC procedures to verify client identities and monitor transactions. Regardless of jurisdiction, law firms must verify the identity of their clients, understand the nature of their business, and assess the risk associated with each client and transaction. By complying with these legal requirements, firms help prevent the misuse of their services for illegal activities and ensure that all client funds are handled responsibly.

KYC Obligations Guide | Dutch Legal Compliance

Being a legal & tax law firm established in The Netherlands, we are obliged to comply with the Dutch and EU anti money laundering laws and regulations which impose on us compliance rules to obtain clear evidence of our client’s identity as a legal requirement before we commence our service provision and our business relationship.

To comply with these requirements, we will need the following documents for identification, address verification, and business background checks. The following outline pictures what information we require in most cases and the format in which this information has to be supplied to us. Should you, at any stage, need further guidance, we will gladly provide professional assistance in this preliminary process.

Your identity

We always require an original certified true copy of a document, which evidences your name and which evidences your address. These documents must be verified to ensure their authenticity and compliance with our KYC procedures. We are not able to accept scanned copies. In case you physically appear in our office we can identify you and make a copy of the documents for our files.

• Valid signed passport (notarized and provided with an apostille);

• European identity card;

Your address

One of the following originals or certified true copies (no more than 3 months old):

• An official certificate of residence;

• A recent bill for gas, electricity, home telephone or other utility;

• A current local tax statement;

• A statement from a bank or a financial institution.

Letter of reference

In many case we will require a letter of reference issued by a professional service provider who or which has known the individual for at least one year (e.g. notary, lawyer chartered accountant or a bank), which states that the individual is considered to be a reputable person who is not expected to be involved in trafficking in illicit drugs, organized criminal activity or terrorism.

Business background

To comply with the imposed compliance requirements, in many cases we will have to establish your present business background; these requirements apply to both individuals and businesses subject to KYC regulations. This information needs to be supported by evidencing documents, data and reliable sources of information, such as for instance:

• Summary outline;

• Recent extract from commercial registry;

• Commercial brochures and website;

• Annual reports;

• News articles;

• Board appointment.

Companies operating in regulated sectors must provide additional documentation to demonstrate compliance. Companies are also expected to develop comprehensive KYC policies to address all relevant aspects of compliance. Different aspects of the compliance program may require specific documentation or procedures.

Confirming your original source of wealth and funds

One of the most important compliance requirements we have to meet is to also establish the original source of the money you use to fund a Company/Entity/Foundation. This process helps to minimise the risk of money laundering and financial crime. Law firms are required to carry out these checks as part of their regulatory obligations.

Additional Documentation (if a Company / Entity / Foundation is involved)

When a company, entity, or foundation is involved, law firms must take extra steps to verify their identity and business activities. This often requires obtaining official documents such as articles of incorporation, certificates of registration, and tax identification numbers. In addition, law firms may need to verify the identities of key individuals associated with the entity, including directors, shareholders, and beneficial owners. By thoroughly reviewing these documents and confirming the legitimacy of the business and its representatives, law firms can minimize the risk of money laundering and ensure compliance with all relevant regulations. This diligence is essential for managing risk and maintaining the integrity of the firm’s services.

Additional Documentation (if a Company / Entity / Foundation is involved)

Depending on the type of services you require, the structure on which you desire advice and the structure you want us to set up, you will have to provide additional documentation. KYC and AML policies must be implemented for all companies, entities, and foundations to ensure compliance.

Importance of KYC Compliance in Legal Practice

Complying with KYC obligations is not only a legal requirement but also a crucial part of maintaining the integrity and reputation of our firm. By thoroughly verifying the identity of clients and understanding their business background, we help prevent involvement in illegal activities such as money laundering, terrorist financing, and other financial crimes. Effective management plays a key role in overseeing compliance and risk assessment processes, ensuring that all procedures are properly implemented and monitored. This due diligence process protects both the client and the firm by ensuring that all business relationships are transparent and compliant with applicable regulations.

Preventing Financial Crime with KYC

KYC procedures are a vital tool in the fight against financial crime. By verifying a client’s identity and gaining a clear understanding of their business activities, law firms can identify and mitigate risks related to money laundering, terrorism financing, and other illicit activities. Effective KYC checks enable firms to detect suspicious transactions, such as unusual transfers or unexplained sources of funds, and report them to the appropriate authorities. For clients deemed high-risk, law firms may request additional documentation, such as a recent bank statement or proof of address, to ensure a thorough due diligence process. By implementing these measures, law firms play a crucial role in protecting the financial system and upholding the highest standards of legal compliance.

Managing Client Funds and Risk Assessment

As part of our compliance procedures, when managing client funds, we perform a comprehensive risk assessment to identify any potential risks associated with the client or the transaction. This includes reviewing the client’s financial background and scrutinizing any suspicious transactions. Taking reasonable steps to verify the information provided helps us mitigate risks and ensures that we adhere to the highest standards of professional conduct.

Ongoing Monitoring and Customer Obligations

KYC compliance is an ongoing process. Beyond the initial verification, we continuously monitor the business relationship and transactions to detect any unusual or suspicious activity. Customers also have ongoing obligations to provide updated information and documentation as required, ensuring that their profiles remain accurate and compliant with KYC regulations. Clients also have obligations to provide additional information or documentation when requested, helping us maintain an up-to-date understanding of their profile and ensuring compliance throughout the duration of the relationship.

Best Practices for KYC Compliance

To achieve effective KYC compliance, law firms should adopt a set of best practices that go beyond basic regulatory requirements. This includes conducting comprehensive risk assessments for each client, verifying identities using reliable and up-to-date documents, and continuously monitoring client activity for suspicious transactions. Establishing clear internal policies and procedures for KYC checks is essential, as is providing regular training for staff to ensure they are equipped to identify and manage potential risks. Law firms should also have protocols in place for handling high-risk clients and reporting any suspicious activity to the relevant authorities. By following these best practices, law firms can minimize the risk of money laundering and other financial crimes, maintain full compliance with legal obligations, and build lasting trust with their clients.