Each year, about $2tn in illicit cash flows into the financial system worldwide, despite the efforts of financial institutions and regulators to stop money laundering and terrorist financing. One way to stop dirty money is through enhanced due diligence (EDD), a deep know your customer (KYC) process that digs into transactions and customers that pose greater risk of fraud.
EDD is generally thought to be a higher grade of screening than basic CDD and may require more details requests, such as sources of funds and wealth, corporate appointments, and affiliations with other individuals and companies. It usually 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 threaten the bank’s operations.
The regulatory bodies have guidelines on when EDD should be triggered. This is usually dependent on the type of transaction or customer, as well whether the person in question is politically exposed (PEP). It is the decision of each FI to decide whether they wish to include EDD to CDD.
It is important to establish policies that clearly explain to employees what EDD expects and what it doesn’t. This helps avoid situations that are high-risk and can lead what is enhanced due diligence bsa to hefty fraud fines. It’s also important to have a thorough identity verification procedure that enables you to detect alarms such as hidden IP addresses, spoofing technologies and fictitious identities.