Each year, about $2tn in illicit cash flows enter the global financial system despite the efforts of financial institutions and regulators to stop money laundering and financing of terrorists. To data rooms: setting the gold standard in corporate transparency stop dirty money, enhanced due diligence (EDD) is a method that involves a thorough Know Your Customer (KYC), which investigates customers in depth and transactions with greater fraud risks.
EDD is generally considered to be a higher level of screening than CDD and may require more information requests, such as sources of funds and wealth, corporate appointments, and associations with other individuals or companies. It typically involves more thorough background checks, such as media searches, to discover any publicly available evidence or reputational evidence of criminality or other misconduct that could be a threat to the bank’s operations.
The regulatory bodies have guidelines for when EDD should be triggered. This is usually dependent upon the nature of the transaction or customer, as well as whether the person involved is politically exposed (PEP). But ultimately, it’s up to each FI to take a subjective judgement on what triggers EDD on top of CDD.
It is essential to have policies that clearly state to employees what EDD expects and what it does not. This helps avoid high-risk situations that can lead to significant fraud fines. It is important to have a process for identity verification in place that can identify red flags such as hidden IP addresses, spoofing tools, and fictitious identifies.