A requirement under the Bank Secrecy Act (BSA) and the USA PATRIOT Act that obligates financial institutions to verify the identity of their customers and maintain records of the information used to verify their identity. The purpose of CIP is to prevent financial crimes such as money laundering, terrorist financing, and identity theft by ensuring that financial institutions know their customers and can detect suspicious activities.
Overview
A Customer Identification Program (CIP) is a United States requirement, where financial institutions need to verify the identity of individuals wishing to conduct financial transactions with them and is a provision of the USA Patriot Act. More commonly known as know your customer, the CIP requirement was implemented by regulations in 2003 which require US financial institutions to develop a CIP proportionate to the size and type of its business. The CIP must be incorporated into the bank's Bank Secrecy Act/Anti-money laundering compliance program, which is subject to approval by the financial institution's board of directors.
Information Collection
Under CIP, financial institutions must obtain and verify certain information from their customers when opening an account, such as:
- Name: Full legal name of the customer.
- Date of birth: The customer's date of birth.
- Address: The customer's residential or business address.
- Identification number: Such as Social Security number (SSN), taxpayer identification number (TIN), or passport number.
Verification Procedures
Financial institutions must also implement risk-based procedures to verify the identity of their customers, such as:
- Document verification: Verifying the customer's identity using documents, non-documentary methods, or a combination of both.
- Government list checks: Checking the customer's name against government lists of known or suspected terrorists or terrorist organizations.
- Beneficial ownership: Determining whether the customer appears to be acting on behalf of another person or entity and, if so, obtaining information about the person or entity.
Record Keeping
Financial institutions must maintain records of the information obtained during the CIP process, including:
- Identifying information: Information provided by the customer.
- Document description: Description of the documents used to verify the customer's identity.
- Non-documentary methods: Description of the non-documentary methods and results used to verify the customer's identity.
- Discrepancy resolution: Description of the resolution of any discrepancies in the identifying information.
Applicability and Penalties
CIP requirements apply to various financial institutions, including banks, credit unions, broker-dealers, mutual funds, futures commission merchants, and introducing brokers. Failure to comply can result in civil and criminal penalties, including fines and imprisonment.
