Every year, around $2tn of illicit cash flows are circulating through the financial system worldwide, despite the efforts of financial institutions and regulators to stop money laundering and terrorist financing. To combat dirty money, enhanced due diligence (EDD) is a procedure that requires an extensive Know Your Customer (KYC) which investigates customers in depth 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, including sources and corporate appointments, funds, and associations with companies or individuals. It can also involve more extensive background checks, which may include media searches, to identify any publically available or reputational evidence of misconduct or criminal activity that could create a risk to the bank’s business.
The regulatory bodies establish guidelines for when EDD should be triggered. This is usually dependent on the nature of the customer or transaction and also whether the person in question is a politically exposed person (PEP). It is the decision of each FI whether they want to add EDD to CDD.
It is important to have policies that clearly explain to employees what EDD expects and what it does not. This helps avoid high-risk situations that could lead to hefty fraud fines. It’s important to have a process for identity verification in place that will allow you to identify red flags like hidden IP addresses, spoofing tools and fictitious identifications.