Following the events of September 11, 2001, the Patriot Act was signed into law. It was enacted on October 26, 2001, and part of the legislation was designed to prevent, detect, and prosecute international money laundering and terrorism financing with Know Your Customer (KYC) standards and regulations. Click here for more information on KYC procedures.

To fully understand your KYC procedures and requirements under U.S. law, here’s a brief overview of what the Customer Identification Program (CIP) is and why it should matter to American financial institutions and companies.

What is the Customer Identification Program (CIP)?

The Customer Identification Program, also called CIP, is a major component of the Bank Secrecy Act through an amendment to the Patriot Act. It requires financial institutions to take steps to confirm the valid identity of all customers or potential customers. The CIP is also referred to as the “Know Your Customer” program.

CIP requirements and compliance

To uphold Know Your Customer standards and requirements in the U.S., financial institutions must commit to adhering to certain KYC procedures. For example, whenever a customer opens a new account, financial institutions are legally required to verify the person’s identity with six main things:

• A written, customized CIP (appropriate for the size and type of financial institution)
• Name
• Address
• Birthday
• ID number
• Identity verification procedures
• Recordkeeping procedures
• Comparison procedures (with government lists)
• Customer notification

Why is the CIP important and necessary?

CIP is important because it holds financial institutions accountable to make sure they don’t directly, indirectly, or unknowingly conduct financial transactions with risky customers who are committing financial crimes. By preventing these risky customers from conducting financial transactions, the ultimate goal is to prevent money laundering and terrorism financing from within the U.S.

Who needs to comply with CIP regulations?

Many businesses, not just banks, need to comply with CIP regulations! There is a long list of potential organizations that are subject to CIP regulations, but a few examples include:

• Commercial banks
• Credit unions
• Private banks
• Travel agents
• Pawnbrokers
• Casinos
• Insurance companies
• Precious metal dealers

If you’re unsure whether your company needs to comply with CIP regulations, it’s a good idea to meet with a lawyer to discuss it.

Read a similar article about eKYC meaning here at this page.