Every year around $2tn in illicit cash flows through the global financial system, despite the efforts of regulators and financial institutions to prevent money laundering and terrorist financing. One method to combat the dirty money is to implement enhanced due diligence (EDD), a deep know your customer (KYC) process that focuses on transactions that carry greater fraud risks.
EDD is considered to be a higher screening level than CDD and can include more information requests like sources and corporate appointments, money, and affiliations with companies or individuals. It usually involves more thorough background checks, such as media searches, to discover any publicly available evidence or evidence of reputational proof of criminality or other misconduct that could be a threat to the bank’s operations.
The regulatory bodies have guidelines on when EDD should be triggered. It is typically based on the type of transaction or customer, as well whether the person concerned is politically exposed (PEP). It is the decision of each FI to decide if they want to add EDD to CDD.
It is essential to have policies that clearly inform employees what EDD expects and what it is not. This will help to avoid high-risk scenarios that can result in hefty fines for fraud. It’s also important to have an accurate identity verification process that enables you to detect warning signs such as hidden IP addresses, spoofing technology and fictitious identities.
