The Importance of Knowing Your Customer during the Holidays

Know Your Customer (KYC) is not only a requirement from the Bank Secrecy Act’s Customer Due Diligence (CDD) Rule, but is also an important part of keeping financial institutions and their customers safe during the holiday season. KYC can help financial institutions determine who are likely targets of fraud, as well as what patterns of activity are indicative of a fraudster. KYC can be used to detect fraud through information collected directly from the customer (i.e. date of birth, full name, occupation, anticipated activity, etc.), as well as behavioral patterns (i.e. types of transactions typically seen, previous SARs, amounts of cash typically seen, etc.).

For these reasons, financial institutions should take steps to know their customers, especially during the holiday season. They can ensure that their accounts are not being used to commit fraud, and they can alert their customers when the activity breaks from the customer’s age demographics, location, and past activity. KYC shows financial institutions what is normal for customers based on their past activity and employment, which allows a FI to alert the customer to a scam. Knowing customers’ demographics also allows a FI to target warnings and steps to protect customers to populations that would be vulnerable to certain types of scams.

KYC allows financial institutions to see what populations are vulnerable to fraud, such as grandparent fraud targeting the elderly, and it allows them to see patterns of activity that deviate from a customer’s expected activity. For example, a grandparent scam is where a fraudster calls pretending to be a grandchild in need of money. Last year, one victim to a grandparent scam lost over $40,000 over the course of three days during the holiday season, where the victim packaged cash and mailed it to the fraudster.[1] For an elderly person, taking out that amount of cash from their account in such a short amount of time would be a deviation from the normal pattern of activity.

The Better Business Bureau also cited fake puppy for sale scams as a common form of fraud during the holiday season; in this scam fraudsters create fake websites and sales advertisements that lure holiday shoppers into thinking that they are buying a real puppy. People send money to the fraudsters using wire transfers, thinking that they are paying for adoption fees, insurance, and other adoption-related expenses[2]. Wire transfers may be outside of the normal behavior for an individual, which should alert the institution to investigate the deviation in behavior, especially if the wire is international and going to a country to which the customer has no connection. If the financial institution knows that this behavior is out of pattern for the customer, they can take steps to warn their customer.

KYC also allows financial institutions to see which customers are likely fraudsters. For example, knowing customers’ employment will help determine what activity is out of pattern for each individual. Based on data obtained from the Bureau of Labor Statistics, the average repairperson makes approximately $48,000 annually[3]. If a person tells the financial institution that they are working in that industry, but has a much higher volume of activity going into their account, it should raise questions at the FI as to the source of the funds. The person may be selling some personal belongings to make extra money around the holiday season, or they could be a fraudster selling fake products, taking advantage of chargebacks, or partaking in another form of fraud.

Many types of fraud committed around the holiday season use emotional appeals to target vulnerable individuals or normally vigilant people with their guards down. For these reasons, KYC information collected by financial institutions and a sophisticated monitoring system add layers of protection during the busy holiday season, when there are increased opportunities for fraudsters.


[1] https://consumer.sd.gov/consumeralerts/grandparentscam18b.aspx

[2] https://www.bbb.org/pittsburgh/holiday-resource-center/avoid-holiday-scams/

[3] Statistics downloaded from: https://www.bls.gov/web/cewdat.supp.toc.htm

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Amanda Salasek

Amanda Salasek

Amanda Salasek is a Senior Analyst at AML RightSource and has been an employee since May 2017. She has two and a half years of experience working on CDD and EDD projects, with a focus on business and investment fund customers. Prior to AML RightSource, she graduated from Mercyhurst University with a Bachelor of Arts in Intelligence Studies and a Summa Cum Laude distinction, as well as minors in Russian Studies, Political Science, and Psychology of Crime and Justice. During her time as a student, she also worked as a business competitive intelligence analyst for two and half years.

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