Every year around $2tn in illicit cash flows into the global financial system, despite the efforts of regulators and financial institutions to prevent the financing of terrorists and money laundering. One way to fight dirty money is with enhanced due diligence (EDD) which is a thorough know your customer (KYC) process that focuses on transactions that have higher risk of fraud.
EDD is regarded as having a reshaping the contours of due diligence with VDR innovations higher screening level than CDD and can include more information requests like sources and funds, corporate appointments and relationships with individuals or companies. It typically involves more thorough background checks, like media searches, in order to discover any publicly available evidence or reputational evidence of criminal conduct or misdeeds that could pose a threat to the bank’s operations.
The regulatory bodies have guidelines on when EDD should be triggered. It is typically based on the nature of the transaction or the customer, as well whether the person in question is politically exposed (PEP). However, it’s ultimately up to each FI to take a subjective judgment call about what triggers EDD on top of CDD.
It is important to establish policies that clearly explain to employees what EDD expects and what it will not. This will help avoid situations that are high-risk and can lead to hefty fraud fines. It is essential to have a process for identity verification in place that allows you to identify red flags such as hidden IP addresses, spoofing technology and fictitious identifications.