Around $2tn of illicit cash flows each year through the financial system worldwide despite efforts from regulators and financial institutions. One way to fight dirty money is with enhanced due diligence (EDD) and a comprehensive know your customer (KYC) process that digs into transactions and customers that pose greater risk of fraud.
EDD is regarded as having a higher screening level than CDD and can contain more information requests like sources and corporate appointments, money, and relationships with individuals or companies. It is often accompanied by more thorough background checks, like media searches, to find any publicly available evidence or evidence of reputational proof of misconduct or criminal activity that could pose a threat to the bank’s operations.
The regulatory bodies have guidelines for when EDD should be triggered, and this is typically based on the nature of the transaction or customer, as well as whether the person who is being questioned is a politically exposed individual (PEP). However, it’s ultimately up to each FI to make a purely subjective judgment on what triggers EDD on top of CDD.
The most important thing is to develop solid policies that make it clear to employees what EDD is and what it isn’t. This will help avoid high-risk situations that could lead to hefty 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 technology, and fictitious identities.
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