Every year around $2tn in illicit cash flows through the financial system around the world, despite the efforts of regulators and financial institutions to stop money laundering and terrorist financing. To combat dirty money, enhanced due diligence (EDD) is a process that involves a thorough Know Your Customers (KYC) that digs deep into customers as well as transactions that carry higher fraud risks.
EDD is considered a higher screening level than CDD and can also include more information requests like sources and funds, corporate appointments and associations with individuals or companies. It typically involves more thorough background checks, such as media searches, in order to identify any publically available evidence or evidence of reputational proof of criminal activity or misconduct that could be a threat to the bank’s operations.
The regulatory bodies have guidelines on when EDD should be activated. This is typically based on the nature of the customer or transaction, as well as whether the person who is being questioned is a politically exposed individual (PEP). It is up to each FI to decide whether they wish to include EDD to CDD.
The key is to create effective policies that make easy for staff to understand what EDD is, and what it doesn’t. This will help avoid high-risk situations that can lead to significant fraud fines. It’s also important to have an accurate identity verification process that allows you to spot warning signs such as hidden IP addresses, spoofing technology and fictitious identities.
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