Why KYC — for organizations

February 24, 2020

When your bank routinely asks you to provide personal information, it can be annoying. They ask even if you’re a long-time client, even for the business accounts you manage and even if you’re only an authorized signer. Why?


U.S. financial institutions are part of the first line of defense against illegal money laundering and terrorist financing. They play a key role in global efforts to prevent terrorist and other criminal organizations from earning, moving and storing illicit funds.

Criminal organizations can be involved in a wide range of illicit activities such as cybercrimes, arms trafficking, kidnapping, extortion, drug trafficking, human trafficking and smuggling, domestic terrorism, and international terrorism. All banks have a responsibility to know their customers and understand how transactions from illegal activities might flow through their institution.


As a nation, the threats we face today are as significant as ever

Since the terrorist attacks of Sept. 11, 2001, and as early as the 1980’s, banks and regulators have focused on limiting terrorist funding and money laundering related activities through the U.S. financial system. It’s hard to move funds around the globe and within a country without using a financial institution, therefore banks have continually been asked to increase their efforts to prevent, detect and report potentially suspicious financial transactions indicative of money laundering and terrorist financing. Know Your Customer (KYC) regulations are a critical component to anti-money laundering efforts.


KYC includes knowing an individual acting on behalf of an organization

In 2016, the U.S. government issued a rule requiring banks to verify the identities of beneficial owners of legal entity clients such as corporations, LLCs, partnerships, unincorporated non-profits and statutory trusts. Beneficial owner information is required for an individual with an ownership stake of 25 percent or more equity interest, and for an individual who exercises significant authority to control the affairs of the legal entity.

If you’re a beneficial owner of a legal entity, you’re asked to provide personal information that includes:

  • Full legal name
  • Date of birth
  • Current residential address
  • Social security number or other government issued identification number

Banks and other financial institutions must collect this information because it’s a regulatory requirement. But more importantly, it helps assist in efforts to prevent, detect and report money laundering, and terrorist financing activity.

For example, while opening a new account and asking key KYC information, a bank may discover through open source record checks that an individual or business has previously defrauded innocent investors, or was previously connected to a global criminal network. This information may indicate that this potential customer could pose an elevated money laundering risk.


Maintaining a good reputation can be a key to success 

Gathering KYC information and discovering potential money laundering risk can help limit exposure to financial risk for banks and their business clients. This helps protect from potential damage to reputation, which can be just as important as safeguarding financial assets.


Global expansion of trade, travel and financial systems compounds the threat

Today, we live in a global economy with transcontinental trade and travel spanning the world. We have an expansive and sophisticated global banking network and there’s an increased ease to global communications.

From the internet to intercontinental air travel, local crime has become transnational crime that crosses our borders and poses an even greater risk to our nation. This makes KYC even more critical than it ever was before.

The more financial institutions understand about their customers the more proactively they can identify activity that’s unusual for a customer type, a customer in a particular location or region, etc. Having the information to recognize expected patterns is fundamental in identifying potential money laundering and/or terrorist financing. 

We hope this helps explain why banks ask for your personal information, even if you’re handling the accounts of your organization.

Related content

The cyber insurance question: Additional protection beyond prevention

Higher education strategies for e-payment migration, fighting fraud

The mobile app to download before summer vacation

5 Ways to protect your government agency from payment fraud

Authenticating cardholder data reduce e-commerce fraud

Insource or outsource? 10 considerations

4 strategies for coping with market volatility

Automate escheatment for accounts payable to save time and money

Risk management strategies for foreign exchange hedging

Automate accounts payable to optimize revenue and payments

Protecting cash balances with sweep vehicles

3 tips to maintain flexibility in supply chain management

What is CSDR, and how will you be affected?

Webinar: How to stay safe from cyberfraud

How to avoid being the victim of a digital payments scam

Cybercrisis management: Are you ready to respond?

Dear Money Mentor: What is cryptocurrency?

How to keep your assets safe

Learn to spot and protect yourself from common student scams

Cryptocurrency custody 6 frequently asked questions

How to spot an online scam

IRC Section 305(c): Deemed distributions and related regulations

Complying with changes in fund regulations

Small business growth: 6 strategies for scaling your business

Manufacturing: 6 supply chain optimization strategies

Healthcare marketing: How to promote your medical practice

Liquidity management: A renewed focus for European funds

Administrator accountability: 5 questions to evaluate outsourcing risks

5 questions you should ask your custodian about outsourcing

Webinar: Approaching international payment strategies in today’s unpredictable markets.

10 ways a global custodian can support your growth

Webinar: Mobile banking tips for smarter and safer online banking

How to choose the right custodian for your managed assets

Webinar: How to fight off fraud

Webinar: Protect yourself or your loved ones from elder fraud

Increase working capital with Commercial Card Optimization

Fraud prevention checklist

4 ways to outsmart your smart device

Money muling 101: Recognizing and avoiding this increasingly common scam

What you need to know about financial fraud

How you can prevent identity theft

Alternative investments: How to track returns and meet your goals

Hospitals face cybersecurity risks in surprising new ways

Rule 2a-5 overview: Good faith determinations of fair value

Webinar: Cash management strategies for higher education

5 steps you should take after a major data breach

Cybersecurity – Protecting client data through industry best practices

Why KYC — for organizations

Rule 18f-4: An in-depth look at the derivative risk management program and value-at-risk

Rule 18f-4: The limited use exception

Rule 18f-4 overview: Regulatory framework changes for derivatives

Post-pandemic fraud prevention lessons for local governments

BEC: Recognize a scam

Fight the battle against payments fraud

The latest on cybersecurity: Vulnerability testing and third-party software

The password: Enhancing security and usability

3 timeless tips to reduce corporate payments fraud

The surprising truth about corporate cards

White Castle optimizes payment transactions

Maximizing your deductions: Section 179 and Bonus Depreciation

Avoiding the pitfalls of warehouse lending

4 tips for protecting your business against Coronavirus-related scams

Proactive ways to fight vendor fraud

The latest on cybersecurity: Mobile fraud and privacy concerns

How to improve your business network security

Government agency credit card programs and PCI compliance

Depositary services: A brief overview

The benefits of a full-service warehouse custodian

A first look at the new fund of funds rule

Webinar: A closer look at U.S. Bank AP Optimizer

The future of financial leadership: More strategy, fewer spreadsheets

How to improve digital payments security for your health system

Enhancing liquidity management: 4 benefits of visibility

Webinar: Fraud prevention and mitigation for government agencies

Webinar: CRE Digital Transformation – Balancing Digitization with cybersecurity risk

Webinar: Robotic process automation

Start of disclosure content

Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rate and program terms are subject to change without notice. Mortgage, home equity and credit products are offered by U.S. Bank National Association. Deposit products are offered by U.S. Bank National Association. Member FDIC.