What Is KYC and Why Is It Important for the chemical industry?

Every day, we go about our lives trusting that our customers have people’s best interests at heart—and that they’re using our products for good. But how many of us really know who we do business with? What if it turned out our customers were criminals?

This is where the importance of KYC (Know Your Customer) comes in. KYC is mostly for financial industries, but it’s also necessary for those using online buying and selling platforms that process payments and money. In short, any business that has money flowing through it is subject to KYC rules.

In this article, we'll take a look at what KYC is and why it's so important in the chemical industry. 

What is KYC?

KYC stands for “Know Your Customer.” It’s a process whereby businesses verify the identity of the people they’re selling products to or keeping money for. It helps businesses build trust with their customers and ensures that their products are being used for legal and ethical purposes. 

To verify a customer's identity, businesses will usually ask for some form of documentation, such as a passport or driver's license. They may also carry out background checks and other forms of due diligence. Once a customer has been verified, their identity will be recorded on the business's KYC register.

Why Is KYC Important in the Chemical Industry?

Those in the chemical industry know the importance of making sure chemicals are the real deal—but we often neglect to give customers the same level of scrutiny. 

The chemical industry is particularly vulnerable to money laundering and other criminal activity because many chemicals can be used for both legitimate and illegal purposes. For example, different chemicals can be used to make weapons or drugs.

This means it's particularly important for businesses in the chemical industry to know who their customers are. 

What Are the Benefits of KYC for Chemical Suppliers?

First and foremost, KYC helps to protect your business from liability. If one of your customers is involved in a money laundering scheme, for instance, and you can prove that you took steps to verify their identity, you will not be held liable.

Second, KYC can help to build customer loyalty. If your customers know that you are a responsible vendor and that you take their privacy and security seriously, they are more likely to do business with you again in the future.

Finally, KYC can help you avoid doing business with risky customers. By taking the time to verify your customers' identities, you can screen out those who may be more likely to engage in fraudulent or illegal activity.

KYC procedures are there to stop money laundering, identity theft, terrorism financing, and other financial crimes (Image Source).

KYC: What Are the Rules for Chemical Companies?

By law, KYC is required for financial institutions to establish the legitimacy of a customer’s credentials and identify risk factors—and not complying with these rules could mean big penalties. 

A Short History...

KYC requirements were introduced in the 1990s. The goal was to fight the wave of money laundering becoming apparent then. After the 9/11 attacks, the US government implemented stricter KYC as part of the Patriot Act. These changes were being worked on before 9/11, but the terrorist attacks provided the political impetus needed to get the heightened rules in place.

KYC: Three Key Areas of Protection for Chemical Companies

According to the Association of Certified Financial Crime Specialists (ACFCS), some key areas of corruption and financial crime that chemical companies need to be aware of are money laundering and fraudulent activities. Let's take a closer look at what each of these means.

Money Laundering: Criminals use dummy accounts in banks for channeling money gained via a range of illegal activities, including human trafficking, smuggling, and more. Sharing the funds across a wide range of accounts makes it harder to trace, therefore making it easier for criminals to avoid suspicion.

Financial Fraud: KYC is designed to stop a range of illegal activities at the root, such as using fake or stolen IDs for securing loans. 

4 Ways Chemical Suppliers Comply with KYC

To comply with KYC regulations, chemical suppliers need to take a number of steps to verify the identities of their customers. These include verifying documents such as passports and driver's licenses, as well as checking for any red flags that may indicate fraudulent or illegal activity. Here are four things suppliers can do:

1. Find Out Who’s Behind the Organization

The first step is to clearly identify your customers, including the beneficial owners of organizations. For companies, this would be the shareholders with a 25% or greater stake in the business. For trusts, this would be the trustees and beneficiaries. For individuals, this would simply be the person themselves.

1. Gather Data (Ethically)

Next, you'll need to gather some basic information about your customer, including their name, date of birth, address, and nationality. You'll also need to collect some supporting identification documentation, such as a passport or driver's license.

When gathering data for KYC purposes, chemical suppliers doing business in Europe need to be mindful of CCPA/GDPR compliance. They should take steps to protect the privacy of their customers, such as by ensuring that data is collected and stored securely. They should also only gather the minimum amount of data necessary to complete the verification process.

Image Source

1. Verify Your Data

After you have this information, you'll need to confirm it using an independent source. This could be a government-issued ID document or a utility bill. Once you've verified the information, you'll need to keep it on file in case you need to refer to it later.

You should also keep an eye out for any changes to the information you have on file. If a customer's name or address changes, for example, you'll need to update your records and re-verify the new information.

1. Comply With CDD Requirements

In addition to verifying the identity of your customers, you'll also need to comply with CDD requirements. This includes keeping track of your customers’ transactions and reporting any suspicious activity to the authorities.

You should also have procedures in place for when a customer fails to meet their obligations under KYC regulations. This could include freezing or terminating their account.

KYC in the Chemical Industry

Complying with KYC requirements can be a challenge, but it’s important to remember that these procedures are in place to protect you, your customers, and your business. By following the steps outlined above, you can help ensure compliance and avoid any penalties.

BluePallet is a cloud-based software that helps chemical suppliers comply with KYC regulations. It allows you to quickly and easily collect and verify customer information, keep updated records of customer activity, and report any suspicious activity with the click of a button. This makes it easier for suppliers to meet their KYC obligations and avoid any penalties.

To explore how BluePallet can help you comply with KYC regulations, get in touch and speak to our team today.

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