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 prevent the financing of terrorists and money laundering. One way to stop dirty money is through enhanced due diligence (EDD) which is a thorough know your customer (KYC) process that digs into transactions and customers that pose greater fraud risks.
EDD is considered a higher screening level than CDD and can include more information requests, including sources and corporate appointments, funds and affiliations with companies or individuals. It is often accompanied by more thorough background checks, like media searches, to discover any publicly available evidence or evidence of reputational proof of criminal activity or misconduct that could jeopardize the bank’s operations.
The regulatory simplify IPO document management with intuitive data rooms bodies have guidelines on when EDD should trigger. It is typically based on the type of transaction or customer, and also whether the person in question is politically exposed (PEP). However, it is up to each FI to make a purely subjective decision about what triggers EDD in addition to CDD.
The key is to create solid policies that make it clear to staff members what EDD needs, and what it doesn’t. This will help avoid situations that are high-risk and can lead to hefty fraud fines. It is important to have a verification process for your identity in place that will allow you to identify red flags, such as hidden IP addresses, spoofing techniques and fictitious identities.