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43 U. Tol. L. Rev. 319 (2011-2012)
Know Your Customer - Or Not

handle is hein.journals/utol43 and id is 325 raw text is: KNOW YOUR CUSTOMER-OR NOT
Genci Bilali*
4(j7NOW         Your   Customer    (henceforth  KYC)     refers  to  the
IX..requirement for banks and other financial institutions to monitor,
audit, collect, and analyze relevant information about their customers (or
potential customers) before engaging in financial business with them.'
Companies' KYC policies are designed and implemented to conform to a variety
of acts and regulations issued by Congress and supervisory agencies. Generally,
these policies are intended to not only prevent identity theft, fraud, money
laundering, and terrorist financing, but also to help regulate business risks related
to lending and investment activities between banks and their customers.3
Failures by commercial and investment banks to implement and fully
comply with KYC policies in either lending or product offerings were among the
causes of the economic and financial crisis of 2007 to 2009.4 As a result,
banking regulators have undertaken sweeping reforms to make KYC policies
stronger and more efficient.5 The success of these reforms depends upon the
regulators' ability to enforce the rules through the close supervision of financial
This article will offer a brief history of the concept of KYC. This article
will trace the development of KYC rules in commercial and investment banking,
* Attorney at law in New York, and a solicitor in England and Wales. Mr. Bilali specializes
in banking, corporate, and finance laws, and has authored and co-authored numerous academic and
research papers related to U.S. and international banking laws. He may be contacted by email at
1. See Know Your Customer, WIKIPEDIA, http://en.wikipedia.org/wiki/Know_yourcustomer
(last visited Jan. 3, 2012).
2. See generally Daniel Mulligan, Comment, Know Your Customer Regulations and the
International Banking System: Towards a General Self-Regulatory Regime, 22 FoRDHAM INT'L L.J.
2324 (1999).
3. See generally John J. Byrne, Douglas W. Densmore & Jeffery M. Sharp, Examining the
Increase in Federal Regulatory Requirements and Penalties: Is Banking Facing Another Troubled
Decade?, 24 CAP. U. L. REv. 1 (1995).
4. Goldman Sachs estimates that plain lending accounted for 95% of bank losses during the
economic and financial crises of 2008-2009. See generally The Lex Column, America Sees a
Shrink, FIN. TIMEs (London), Feb. 3, 2010, at 16.
5. See generally Onnig H. Dombalagian, Is Financial Reform Too Big to Fail? Emerging
from the Financial Crisis with the Help of Increased Consumer Protection and Corporate
Responsibility: Investment Recommendations and the Essence of Duty, 60 AM. U. L. REv. 1265

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