Basel Committee on Banking Supervision
February 8, 2001
Circular No. 11321

Consultative Paper on Customer Due Diligence for Banks

To the Chief Executive Officers of all Bank Holding Companies, State Member Banks, State-Chartered Non-Insured U.S. Branches & Agencies of Foreign Banks, and Edge & Agreement Corporations in the Second Federal Reserve District:

In a press release dated January 31, 2001, the Basel Committee on Banking Supervision, part of the Bank for International Settlements located in Basel, Switzerland, announced the issuance of a consultative paper, "Customer due diligence for banks." The paper is part of an ongoing effort by the Basel Committee to strengthen risk management procedures in banks throughout the world. In developing the consultative paper, the Basel Committee determined that many countries around the world have not developed basic supervisory practices with regard to money laundering and other financial crimes and look to the Basel Committee for guidance in these areas. The consultative paper, once adopted by national supervisors, will provide the framework for national supervisory standards with regard to customer due diligence.

The consultative paper sets forth guidance for national banking supervisors to establish minimum standards and internal controls to ensure that banks know with whom they are doing business. The essential elements for customer due diligence, as set forth in the paper, include customer acceptance policies, customer identification, monitoring of high-risk accounts, and risk management. While the paper sets forth, in broad terms, the essential elements for an effective customer due diligence program, the manner and means by which such programs would be implemented within a banking organization will depend on such factors as the nature of the business conducted, the size of the organization and such other factors that are determinative of internal controls, policies and procedures.

The Basel Committee is inviting comments on the proposals set forth in the consultative paper from all interested parties, including national supervisors, banks, and bankers. Should you wish to comment, such comments must be submitted by March 31, 2001, to the Secretariat of the Basel Committee on Banking Supervision, Bank for International Settlements, CH-4002 Basel, Switzerland, with copies to Nancy Bercovici, Senior Vice President, of this Bank.