Each year, about $2tn in illicit cash flows enter the financial system around the world, despite the efforts of regulators and financial institutions to prevent money laundering and terrorist financing. To stop dirty money, enhanced due diligence (EDD) is a process that involves a thorough Know Your Client (KYC) which is a deep dive into customers and transactions with greater fraud risks.
EDD is generally considered to be a higher level of screening than basic CDD and could involve more details requests, such as sources of wealth and funds corporate appointments, affiliations with other individuals and companies. It typically involves more thorough background checks, like media searches, in order to identify any publically available evidence or reputational evidence of criminal activity or misconduct that could jeopardize the bank’s operations.
The regulatory bodies establish guidelines for when EDD should be triggered, and this is usually based on the nature of the transaction or customer and also whether the person who is being questioned is a politically exposed individual (PEP). It is up to each FI whether they would like to include EDD to CDD.
It is essential to have policies that clearly state to employees what EDD expects and what it will not. This will help avoid high-risk scenarios that can lead to hefty fines for fraud. It’s also vital to have an accurate identity verification process that enables you to detect suspicious IP addresses, spoofing technology, and fictitious identities.
