Every year, around $2tn of illicit cash flows into the global financial system, despite the efforts of financial institutions and regulators to stop money laundering and financing of terrorists. One way to tackle the dirty money is to implement enhanced due diligence (EDD) and a comprehensive know your customer (KYC) process that examines transactions that have higher risk of fraud.
EDD is considered a higher screening level than CDD and can contain more information requests, such as sources and funds, corporate appointments and affiliations with companies or individuals. It can also involve more extensive background checks, like media searches, which are used to determine any reputational or publically available evidence of criminal activity that could pose risks to the bank’s business.
Regulatory bodies have guidelines on when EDD should trigger. This is usually dependent on the type of transaction or customer, as well as whether the person involved is politically exposed (PEP). It is the decision of each FI to decide if they want to add EDD to CDD.
The most important thing is to establish good policies that make it easy for staff to understand what EDD requires and what it does not. This will help to avoid situations that are high-risk and could result in substantial fines for fraud. It is also essential to have a thorough identity verification process that can help you spot warning signs such as hidden IP addresses, spoofing technologies and fake identities.
