Does the “Know Your Customer” Rule Apply to Songwriters?

Every time you turn around, it seems that we hear about hundreds of millions of songwriter royalties that have not been paid by DSPs or The MLC. This begs the question, how did the black box number get so large? It didn’t happen overnight and it didn’t happen in the dark. Somebody knew it was going down.

When you get to the hundreds of millions range, this isn’t that far from a payment processor or even a bank. (In the case of the MLC, that $700-$800 million is deposited in a financial institution and is invested in ways that no one outside the MLC really knows about.)

So how can DSPs put goods into commerce, or how can a bank facilitate these transactions, without knowing who is the song copyright owner and who is entitled to be paid royalties?

There’s a concept in the financial world called “Know Your Customer” that might help. If they can’t use a bank to process the payments, then what happens?

Business Insider has a good explainer about Know Your Customer or KYC:

What is the Know Your Customer rule? 

Know Your Customer (KYC) is part of financial institutions’ legally required due diligence to verify the identity of customers and monitor their transactions. The rule was established by the Financial Industry Regulatory Authority (FINRA).

It requires financial institutions to authenticate the personal information of every individual customer or beneficial owner of a business, include documenting their names, birthdates, and addresses. They also must develop risk profiles for each customer and continually monitor their transactions for signs of illegal activity.

The KYC rule was designed to ensure compliance with anti-money laundering laws, detect suspicious activity, and prevent criminals and terrorists from using the financial system. This helps protect customers, investors, the reputation of the bank, and the integrity of global markets. 

The requirements are pretty simple and could be solved by assigning an ISWC before the work is released in commerce.

Every member shall use reasonable diligence, in regard to the opening and maintenance of every account, to know (and retain) the essential facts concerning every customer and concerning the authority of each person acting on behalf of such customer.

What are the essential facts?

For purposes of this Rule, facts “essential” to “knowing the customer” are those required to (a) effectively service the customer’s account, (b) act in accordance with any special handling instructions for the account, (c) understand the authority of each person acting on behalf of the customer, and (d) comply with applicable laws, regulations, and rules.

This all seems such small potatoes that it’s hard to understand how the DSPs could get away with it, and there certainly seems to be no excuse for the MLC.