Fighting Dirty Money With Enhanced Due Diligence
Every year, around $2tn of illicit cash flows through the global financial system despite the efforts of regulators and financial institutions to prevent money laundering and terrorist financing. To stop dirty money, enhanced due diligence (EDD) is a procedure that requires an extensive Know Your Customer (KYC) which examines the customer’s history and transactions that have higher fraud risks.
EDD is generally thought to be a higher level of screening than basic CDD and may require more information requests, such as sources of wealth and funds corporate appointments, connections with other individuals or companies. It can also involve more extensive background checks, like media searches, in order to find any public or reputational evidence of misconduct or criminal activity that could pose danger to the bank’s business.
Regulatory bodies have guidelines on when EDD should trigger. This is usually dependent on the nature of the transaction or the customer, as well as if the individual in question is politically exposed (PEP). It is the decision of each FI whether they would like to add EDD to CDD.
It is essential to have policies that clearly communicate to employees what EDD expects and what it is not. This will help avoid high-risk scenarios that can cause hefty fines due to fraud. It’s also crucial to have a thorough identity verification procedure which allows you to identify red flags like hidden IP addresses, spoofing technologies and fictitious identities.
