Every year, more than $2tn worth of illicit cash flows enter the financial system around the world, despite the efforts of regulators and financial institutions to stop money laundering and terrorist financing. One way to tackle dirty money is through enhanced due diligence (EDD) that is a comprehensive know your customer (KYC) process that digs into transactions that carry greater risk of fraud.
EDD is regarded as having a higher screening level than CDD and can contain more information requests such as sources and corporate appointments, funds and connections with individuals or companies. It may also require more thorough background checks, such as media searches, to identify any publically available or reputational evidence of misconduct or criminal activity that could pose a risk to the bank’s business.
The regulatory bodies have guidelines for when EDD should be activated. This is usually contingent on the kind of transaction or customer and whether the person in question is a politically exposed person (PEP). But ultimately, it’s up to each FI to take a subjective decision about what triggers EDD on top of CDD.
It is important to establish policies that clearly explain to employees what EDD expects and what it will not. This can help to avoid high-risk situations that lead to huge fines for fraud. It is important to have an identity verification process in place that allows you to detect red-flags such as hidden IP addresses, spoofing https://warpseq.com/what-is-enhanced-due-diligence-bsa/ technology, and fictitious identifies.
