Around $2 trillion in illicit cash flows annually through the global financial systems, despite efforts by regulators and financial institutions. To combat dirty money enhanced due diligence (EDD) is a process that involves a thorough Know Your Customers (KYC) which examines the customer’s history as well as transactions that carry higher risk of fraud.
EDD is considered to be a higher screening level than CDD and can also include more information requests, such as sources and corporate appointments, funds and associations with companies or individuals. It typically involves more thorough background checks, like media searches, to discover any publicly available evidence or evidence of reputational proof of criminality or other misconduct that could jeopardize the bank’s operations.
Regulatory bodies have guidelines on when EDD should be triggered. It is typically based upon the nature of the transaction or customer, as well as whether the person concerned is politically exposed (PEP). But ultimately, it’s up to each FI to take a subjective judgment on what triggers EDD on top of CDD.
It is important to establish policies that clearly explain to employees what EDD expects and what it will not. This will allow you to avoid high-risk scenarios that can result in substantial fines for fraud. It is essential to have an identity verification process in place that allows you to identify red flags, such as hidden IP addresses, spoofing techniques and fictitious identifiers.
