What is Walk-in Customer in Anti-Money Laundering?

Definition

A Walk-in Customer in Anti-Money Laundering (AML) refers to a person who engages in financial transactions with a financial institution without having an account-based or established relationship with that institution. These are one-off or occasional customers conducting transactions that require the institution to perform due diligence measures despite the absence of a prior relationship. Essentially, walk-in customers are non-account holders who may conduct transactions such as deposits, withdrawals, or purchases on an ad-hoc basis.

Purpose and Regulatory Basis

Role in AML

Walk-in customers pose unique AML risks since they may attempt to use financial institutions to launder money without being subject to continuous monitoring and established customer relationships. Because these customers do not have ongoing accounts, they can bypass some traditional AML controls, making it essential for institutions to implement enhanced due diligence whenever these customers transact.

Why It Matters

Financial institutions must ensure that all transactions, including those conducted by walk-in customers, comply with AML regulations to prevent illicit funds from entering or circulating through the financial system. Failure to identify and screen walk-in customers may expose institutions to financial crime risks and regulatory penalties.

Key Global and National Regulations

• FATF Recommendations: The Financial Action Task Force (FATF) mandates customer due diligence (CDD) for all customers, including those transacting occasionally or without established relationships, to detect and deter money laundering and terrorist financing.
• USA PATRIOT Act (United States): Requires financial institutions to implement rigorous customer identification programs for all transactions, including those by walk-in customers, to ensure transparency and traceability.
• European Union AML Directive (AMLD): Enforces thorough verification of all customers and occasional clients to maintain the integrity of the financial system.
• National Regulations (e.g., SBP AML/CFT Regulations in Pakistan): Highlight requirements for verifying walk-in customers using reliable, independent sources such as biometric verification or national identity systems, and screening against sanction lists.

These regulatory frameworks emphasize the importance of identifying and validating the true identity of walk-in customers and performing appropriate risk assessments, despite the lack of ongoing institutional relationships.

When and How It Applies

Real-world Use Cases

• A person walks into a bank branch to cash a check without holding an account.
• An individual purchases high-value goods like gold, diamonds, or other assets from a jeweler without prior registration.
• Occasional investors or parties engaging in one-time real estate transactions handled by real estate agents.
• Non-account holders making money transfers at a financial institution.

Triggers for AML Measures

Walk-in customers trigger specific AML controls mainly when transactions exceed prescribed thresholds or when the nature of the transaction is considered high risk due to the absence of an established relationship. For example, cash transactions beyond a certain amount, or transactions involving countries with increased money laundering risks, prompt enhanced due diligence.

Types or Variants

While the concept of a walk-in customer is generally uniform, some distinctions exist based on transaction frequency, risk profile, and relationship depth:

• Occasional Customers: Those who transact infrequently but not necessarily one-time, such as seasonal buyers or non-regular investors.
• One-Time Walk-in Customers: Those engaging with the institution or business only once with no future transactional expectations.
• Retail Walk-in Customers: General public or individual consumers engaging directly in small or high-value transactions.
• Corporate or Legal Entity Walk-in Customers: Entities performing occasional transactions without an ongoing banking relationship.

For example, in the diamond and precious metals sector, walk-in customers may include buyers who physically inspect and purchase high-value items sporadically.

Procedures and Implementation

Steps for Institutions to Comply

1. Identification and Verification: Obtain and verify the customer’s true identity using official documents (passports, national ID cards), biometric verification, or electronic methods like Video-based Customer Identification Process (V-CIP).
2. Risk Assessment: Evaluate the transaction’s nature, amount, geographic risk, customer profile, and source of funds to categorize risk level.
3. Due Diligence Measures: Conduct enhanced due diligence for transactions involving large sums or high-risk jurisdictions; this includes screening against sanction and politically exposed persons (PEP) databases.
4. Transaction Monitoring: Monitor transactions for unusual patterns or anomalies, even for one-off customers, especially those exceeding regulatory thresholds or suspicious behavior.
5. Record-Keeping: Maintain records of identity documents, transaction details, and due diligence steps for audit and regulatory scrutiny.
6. Staff Training: Ensure employees handling walk-in customers are trained to recognize suspicious activity and understand AML obligations.
7. Sanction Screening: Use automated systems to check customer names against global sanction lists before proceeding with transactions.

These procedures ensure institutions mitigate risks associated with non-relationship customers.

Impact on Customers/Clients

From the walk-in customer’s perspective, the AML requirements translate into:

• Identification Requirements: They must provide valid identification and may be subject to biometric verification.
• Transaction Limits: Some institutions impose limits on cash or transaction values for walk-in customers to restrict AML risks.
• Enhanced Scrutiny: Their transactions may be subject to additional questions or delay due to screening and review processes.
• Privacy Considerations: Institutions must balance AML compliance with customers’ privacy rights, ensuring data protection during verification.
• Restricted Services: Certain services (e.g., opening accounts, wire transfers) might not be available to walk-in customers without further authentication or account creation.

This means walk-in customers have rights to privacy and fair treatment but must comply with verification steps that are sometimes more stringent than for account holders.

Duration, Review, and Resolution

• Timeframes: Walk-in customer transactions are typically instantaneous or short-term; however, ongoing transaction monitoring may continue if relationships evolve.
• Review Processes: Transactions above a certain threshold or flagged as unusual undergo compliance reviews and may trigger Suspicious Activity Reports (SARs).
• Ongoing Obligations: Though walk-in customer relationships are non-ongoing, repeated interactions may convert into formal relationships, prompting regular AML monitoring.
• Resolution: If AML concerns arise, institutions may refuse services, file SARs, or escalate cases to authorities, resolving the matter through investigation or reporting.

Reporting and Compliance Duties

Institutions have strict responsibilities regarding walk-in customers:

• Due Diligence Compliance: Institutions must implement CDD and enhanced due diligence without exceptions for walk-in customers.
• Transaction Monitoring and Reporting: Monitoring for suspicious or large transactions and filing SARs with Financial Intelligence Units (FIUs) as mandated.
• Documentation: Maintain detailed records of transactions and identity verification to provide audit trails for regulators.
• Penalties: Failure to comply with AML rules regarding walk-in customers can lead to heavy fines, reputational damage, and regulatory sanctions.
• Internal Policies: Implement effective AML policies, internal controls, and employee training that cover walk-in customer scenarios.

Related AML Terms

• Customer Due Diligence (CDD): Collection and verification of information to ensure legitimacy of customers, including walk-in customers.
• Know Your Customer (KYC): The process of identifying and verifying customers, applicable to all customers including walk-ins.
• Suspicious Activity Report (SAR): Reports filed when suspicious transactions involving walk-in customers are detected.
• Politically Exposed Persons (PEP): High-risk individuals who may be walk-in customers requiring enhanced due diligence.
• Sanction Screening: Screening all customers, including walk-ins, against restricted or blacklisted persons/entities.
• Occasional Customer: Often used interchangeably with walk-in customer, denotes non-regular transactional customers.

Challenges and Best Practices

Common Issues

• Verification Difficulties: Walk-in customers may lack proper identification or documentation.
• Risk Assessment: Difficulty in accurately assessing risk without a transactional history.
• Operational Burden: Increased workload for compliance teams in verifying and monitoring non-relationship customers.
• False Positives: Automated screening systems may flag legitimate walk-in customers, creating delays.
• Privacy Concerns: Ensuring compliance without infringing on privacy or discouraging legitimate transactions.

Best Practices

• Use of Technology: Employ biometric verification, electronic KYC (e-KYC), and video identification to streamline verification.
• Risk-Based Approach: Tailor due diligence measures to the risk profile of the transaction and customer.
• Robust Training: Equip frontline staff to recognize unusual patterns and understand regulatory obligations.
• Clear Policies: Establish comprehensive policies for dealing with walk-in customers, including transaction limits and documentation requirements.
• Automated Screening: Implement real-time sanction and PEP screening integrated into transaction workflows.
• Regular Audits: Periodic reviews of walk-in customer transactions to identify process gaps and compliance risks.

Recent Developments

• Increased adoption of digital and biometric verification technologies for walk-in customer identification to enhance both security and user experience.
• Regulatory updates encouraging video-based customer identification processes (V-CIP), recognized as equivalent to face-to-face verification in many jurisdictions.
• Use of artificial intelligence and machine learning in transaction monitoring systems to reduce false positives and improve detection accuracy for walk-in customer transactions.
• Greater emphasis on sanctions screening and real-time monitoring as global sanction regimes expand.
• Enhanced scrutiny in high-risk sectors such as precious metals, real estate, and luxury goods where walk-in customers are common.

Walk-in customers represent a specialized AML challenge for financial institutions and regulated entities. Ensuring that all such customers are properly identified, risk-assessed, and monitored is crucial to maintaining the integrity of the financial system and complying with AML laws worldwide.