Every year, more than $2tn worth of illicit cash flows are circulating through the global financial system despite the efforts of regulators and financial institutions to stop money laundering and terrorist financing. One way to stop illicit money is to use enhanced due diligence (EDD) that is a comprehensive know your customer (KYC) process that examines transactions that carry greater fraud risks.
EDD is regarded as a more thorough screening level than CDD and can include more information requests, such as sources and corporate appointments, funds and associations with individuals or companies. It often involves more thorough background checks, such as media searches, to identify any publically available evidence or reputational evidence of criminality or other misconduct that could jeopardize the bank’s operations.
The regulatory bodies have guidelines for when EDD should be triggered. This is typically based on the type of customer or transaction, as well as whether the person who is being questioned is a politically exposed person (PEP). However, it is up to each FI to make a purely subjective judgment call about what triggers EDD on top of CDD.
It is crucial to establish policies that clearly communicate to employees what EDD expects and what it is not. This will help avoid high-risk situations that can lead to significant fraud fines. It is important to have an identity verification process in place that lets you identify red flags, such as hidden IP addresses, spoofing technologies and fictitious identities.