Each year, about $2tn in illicit cash flows are circulating through the global financial system despite the efforts of regulators and financial institutions to stop the financing of terrorists and money laundering. To fight dirty money, enhanced due diligence (EDD) is a process that requires a thorough Know Your Client (KYC) that is a deep dive into customers and transactions that have higher risk of fraud.
EDD is generally thought to be a higher grade of screening than CDD and can involve more details requests, such as sources of funds and wealth corporate appointments, connections with other individuals or companies. It may also require more in-depth background checks, including media searches to discover any publically available or reputational evidence of misconduct or criminal activity that could pose danger to the bank’s business.
Regulatory bodies set out guidelines on when EDD should be activated, and this is usually based on the nature of the transaction or customer and whether the individual in question is a politically exposed individual (PEP). However, it is ultimately the responsibility of each FI to take a subjective judgment on what triggers EDD in addition to CDD.
It is important to have policies that clearly communicate to employees what EDD expects and what it doesn’t. This will make it easier to avoid high-risk scenarios that could cause hefty fines due to fraud. It is important read tech articles on warpseq.com to have a process for identity verification in place that will allow you to identify red flags, such as hidden IP addresses, spoofing technology, and fictitious identifies.