Recent developments underscore importance of KYC and related due diligence – Financier Worldwide

Lawrence E. Ritchie, Malcolm Aboud

Feb 15, 2022

As global trade becomes increasingly complex and interconnected, prudently developing and managing business relationships with contractors, suppliers and other parties is the key to success. In their article published in Financier Worldwide Magazine, Osler’s Lawrence Ritchie, Malcolm Aboud and Emilie Dillon write that due diligence, including “know your customer/counterparty” (KYC) measures, is a critical component of an organization’s compliance framework, and essential for managing the legal, financial and reputational risks of doing business.

Companies must know who they are doing business with, as well as the source of any funds or other property in their transactions. In Canada, several recent legislative and regulatory developments highlight the importance of implementing a strong diligence program for interacting with third parties. These include amendments to Canada’s anti-money laundering (AML) legislation, implementation of beneficial ownership registries, civil liability and sanctions for human rights abuses overseas, and legislation in some jurisdictions regarding supply chain diligence.

Amendments to Canada’s principal anti-money laundering legislation, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, came into effect last June as part of an overhaul to the regulatory landscape. The changes add new obligations requiring reporting entities (financial services providers, money services businesses and others) to take reasonable measures to confirm the accuracy and timeliness of beneficial ownership information for all clients. Beneficial ownership refers to the real person who ultimately owns, controls or benefits from a company.

Sanctions in various jurisdictions can also complicate business operations. In Canada, sanctions prohibit dealing in certain places, with certain parties, or in specified types of transactions. Occasionally, Canadian companies can also be subject to sanctions imposed elsewhere. They should therefore have processes in place that ensure they do not violate any sanctions in jurisdictions where they operate. Companies should also have a full understanding of their contractual relationships throughout their supply chains, as they can be held civilly or criminally liable for the actions of agents, subsidiaries and other counterparties engaged on their behalf. This includes risks of bribery, corruption and human rights violations.

Ensuring that KYC and other due diligence programs are robust and up-to-date will help organizations manage risks and prevent misconduct. Such policies should take into account the company’s risk profile, the jurisdictions where it operates, the parties with which it contracts, the products or services it offers, and other factors.

Read the full article in Financier Worldwide Magazine’s February 2022 issue.