Credit institutions’ duty to identify customer

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Credit institutions’ duty to identify customer

Credit institutions and other financial institutions shall identify their customers and perform customer due diligence on the basis of risk assessment results.

This requirement derives from the Law on the Prevention of Laundering the Proceeds from Criminal Activity (Money Laundering) and of Terrorist Financing and applies to combating money laundering and financing of terrorism.

Combating money laundering and terrorist financing is aimed at preventing the possibility that the proceeds derived from robbery, fraud, narcotics trade, human trafficking and other criminal activities have been made apparently legal (concealing their criminal origination) using banking and other financial institutions’ services.

The purpose of combating terrorist financing is to prevent rendering any financial support to terrorists or committing terrorist acts via banks and other financial institutions.

Therefore, the banks and other financial institutions are obliged to apply “know your client” (KYC) principle. According to the KYC principle, the bank shall know their clients and the purposes on which the clients use services of banks and other financial institutions, as well as essence of client transactions and make certain that client funds do not have criminal origination.

Information regarding a client, which the bank acquires from the client in providing financial services in accordance with Section 62 (5) of Credit Institution Law, is non-disclosable information, but does not contain official secrets. Persons who have disclosed such information shall be held criminally liable.

According to Article 28 (1) of the Law on the Prevention of Laundering the Proceeds from Criminal Activity (Money Laundering) and of Terrorist Financing a customer shall have a duty to provide truthful information and documents to the bank necessary for performing customer due diligence, including information and documents on the beneficial owners (in case a customer is a legal person or is executed in the interest of another person), transactions, economic and personal activities of customers and beneficial owners, the financial standing and the origin of money or other funds.

In case the client refuses to provide the requested information or documents or provides them insufficiently, the bank (other financial institution) shall discontinue its business relationship with the client and require that the client meet their liabilities before maturity.

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