Know Your Customer to Avoid Legal Hassles

The maxim of Knowing Your Customer has been promoted throughout the decades (maybe even throughout the centuries) as being an effective sales attitude to take  but did you know it is also necessary to know your customer to prevent legal problems from cropping up?

One reason you have to know your customer is because you want to avoid encountering someone who intends to use your business as a money laundering front. For instance, in the life insurance business, agents are nowadays taught to be discriminating when accepting certain applications for life insurance coverage from customers who have dubious sources of income. This is because life insurance agents function based on a certain code of ethics since agents often handle huge amounts of money as life insurance premiums. If something should raise warning signs in the mind of the agent, she should always try to back off when necessary, to prevent the life insurance company from inadvertently accepting money from illegal sources to be processed into clean money once it has been used to pay for life insurance premiums. Thus, the life insurance company has unwittingly become a money laundering front for a client.

This same rule is being promoted now in other financial instruments industries, like the stock exchanges in various countries. Securities trade progresses very fast on a daily basis, so you can expect that securities brokers do not bother to check or know their customer more intimately before accepting a trade. And since you can trade big bucks one day and earn peanuts the next in securities trading, it is not surprising that many brokers could not care less whom they do business with so long as they themselves can profit somehow.