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Every year, around $2tn of illicit cash flows through the financial system around the world, despite the efforts of financial institutions and regulators to stop the laundering of money and financing terrorists. To stop dirty money, enhanced due diligence (EDD) is a method that requires a thorough Know Your Client (KYC) that is a deep dive into customers and transactions with greater fraud risks.
EDD is generally considered to be a higher degree of security than CDD, and may involve more information requests, such as sources of wealth and funds, corporate appointments, and affiliations with other individuals and companies. It is often accompanied by more thorough background checks, such as media searches, to identify any publically available evidence or evidence of reputational proof of criminality or other misconduct that could pose a threat to the bank’s operations.
Regulatory bodies have guidelines on when EDD should trigger. This is usually dependent upon the type of transaction or customer, and also whether the person concerned is politically exposed (PEP). It is up to each FI to decide if they want to include EDD to CDD.
It is essential to have policies that clearly inform employees what EDD expects and what it will not. This will make it easier to avoid high-risk scenarios that can result in substantial fines for fraud. It’s also vital to have a thorough identity verification procedure that allows you to spot alarms such as hidden IP addresses, spoofing technologies, and fictitious identities.