What is ODD?

The ODD "Ordinary Due Diligence" is part of a series of concepts covering the checks that companies subject to the Money Laundering Act carry out in connection with taking a new customer into their business - but what does it mean? And how do you practise ODD?

The term ODD "Ordinary Due Dilligence" is most often used among banks and other companies within the financial sector.

However, many different concepts describe the same thing – namely, the customer knowledge from companies to their customers.

The following five terms cited here are very similar to each other:

Other terms that describe the same thing

When talking about customer knowledge, there are up to several terms that can mean the same thing or are very similar. Here is a brief review of a few terms that are similar to each other:

• Customer Screening – companies within the financial sector.
• KYC – "Know Your Customer" - companies that work within the Money Laundering Act.
• CDD - "Customer Due Diligence" - Is most often used by banks.
• ODD – "Ordinary Due Diligence" - banks and financial companies
• Customer Onboarding – banks and financial companies

What is ODD about?

ODD contains the same points as, e.g., KYC contains. The concept thereby includes that you can document that you know your customer; This includes, among other things, control of the identity, financial and business activities, and identifying the risk that the individual customers pose.

When you establish an effective ODD, it helps you as a company to comply with the Money Laundering Act but also to be able to secure an effective business model in your organisation.

The risk-based approach

According to the latest directive, AML 5, which entered into force in January 2020, companies must make greater demands on assessing customer relationships. You must assess each customer's risk of being misused for money laundering or terrorist financing.

Thereby, one of the most fundamental aspects of the Money Laundering Act is:

• Risk assessment
• Policies
• Business corridors

The risk-based approach entails a greater focus on control, e.g., identification and ongoing customer awareness procedures.

Risk assessment

The companies subject to the Money Laundering Act must prepare a risk assessment. In this risk assessment, you must identify the risks you assess to be associated with your customers.

To prepare a risk assessment, the company must:

• Customer by customer, they have to deal with the risk of being exploited for money laundering or terrorist financing.
  
• Explain and justify the assessment and its measures to the relevant supervisory authority.
  
• The risk assessment must also contain the company's precautions seen in the light of being able to prevent money laundering.
  
• Policies
  
• A company's policy describes the company's general risk appetite. This policy includes descriptions of:
  
• What type of customers do you want to do business with?
  
• What types of customers do you not want to do business with?
  
• Business corridors
  
• When you talk about business conduct, it means, in short, that you have a written procedure for what you as an employee or as a company must do in certain situations.
  
• A business process helps to:
  
• To provide an overview of the risks assessed with different customer groups.
  
• To describe the actions to be taken to meet these risks.

How often is a check of the customer's identity carried out?

You must check the customer's identity for all new customer relationships established. Further checks must also be carried out if, for example, there is a change in the customer's circumstances.

This procedure can be repeated once a year for high-risk customers, whereas for low-risk customers, the procedure repeats every five years.

How can the company ensure that they know their customers?

Through a customer familiarisation procedure which is carried out based on the risk assessment - also known as ODD, companies can assess the risk they take when negotiating with customers. Thereby, a customer familiarisation procedure includes obtaining identity information about the customer.

Most often, the identity information will include:

• Name
  
• CPR or CVR number, depending on whether it is a natural or legal person.
  
• Information that describes the desired customer relationship
  
• Information that describes the customer's business and activities

After that, this information must be validated by a reliable source, which means that documents must be verified against other sources validating the customer's identity, e.g., an address or a passport.

Thereby, the customer knowledge procedure will be able to describe what the company must do to be able to say that they know their customers, known as ODD.