Every year, more than $2tn worth of illicit cash flows enter the global financial system, despite the efforts of financial institutions and regulators to stop the financing of terrorists and money laundering. One way to stop illicit money is to use enhanced due diligence (EDD) that is a comprehensive know your customer (KYC) process that examines customers and transactions with greater risk of fraud.
EDD is regarded as having a higher screening level than CDD and may include more information key aspects of digital storage provider selection requests, such as sources and corporate appointments, money, and associations with individuals or companies. It often involves more thorough background checks, like media searches, to identify any publically available evidence or evidence of reputational proof of criminality or other misconduct that could be a threat to the bank’s operations.
The regulatory bodies have rules on when EDD should trigger. It is typically based upon the nature of the transaction or customer, as well whether the person involved is politically exposed (PEP). It is the decision of each FI to decide whether they wish to add EDD to CDD.
The key is to formulate good policies that make it easy for staff to understand what EDD requires, and what it doesn’t. This helps avoid situations that are high-risk and can lead to substantial fraud fines. It is also essential to have a thorough process for identity verification that enables you to detect alarms such as hidden IP addresses, spoofing technologies, and fictitious identities.
