Every year around $2tn in illicit cash flows enter the global financial system, despite the efforts of financial institutions and regulators to stop the financing of terrorists and money laundering. To fight dirty money, enhanced due diligence (EDD) is a procedure that involves a thorough Know enhanced due diligence Your Client (KYC), which is a deep dive into customers and transactions with greater fraud risks.
EDD is considered a higher screening level than CDD and may include more information requests like sources and funds, corporate appointments and associations with companies or individuals. It is often accompanied by more thorough background checks, like media searches, in order to identify any publically available evidence or reputational evidence of criminality or other misconduct that could pose a threat to the bank’s operations.
The regulatory bodies have rules on when EDD should trigger. This is typically contingent on the type of transaction or customer, and also whether the person concerned is politically exposed (PEP). However, it is the responsibility of each FI to make a purely subjective judgment call about what triggers EDD on top of CDD.
The most important thing is to develop solid policies that make it clear to staff members what EDD requires and what it does not. This will help avoid situations that are high-risk and can lead to significant fraud fines. It’s important to have a verification process for your identity in place that can identify red flags, such as hidden IP addresses, spoofing techniques and fictitious identities.
