Each year, about $2tn in illicit cash flows are circulating through the financial system worldwide, despite the efforts of financial institutions and regulators to prevent the laundering of money and financing terrorists. To stop dirty money, enhanced due diligence (EDD) is a procedure that involves an extensive Know Your Customer (KYC) that is a deep dive into customers and transactions with greater risk of fraud.
EDD is regarded as having a higher screening level than CDD and can include more information requests, including sources and corporate appointments, money, and relationships with companies or individuals. It typically involves more thorough background checks, like media searches, to identify any publically available evidence or evidence of reputational proof of criminal conduct or misdeeds that could be a threat to the bank’s operations.
The regulatory bodies have rules on when EDD should be triggered. This is typically contingent upon the nature of the transaction or the customer, as well whether the person in question is politically exposed (PEP). It is up to each FI to decide if they want to include EDD to CDD.
It is important to have policies that clearly communicate to employees what EDD expects and what it is not. This will help avoid situations that are high-risk and could result in substantial fines for fraud. It’s important to have an identity verification process in place that can identify red flags such as hidden IP addresses, spoofing technology and fictitious identities.
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