Around $2 trillion in illicit cash flows every year through the global financial system despite the efforts of financial institutions and regulators. To combat dirty money enhanced due diligence (EDD) is a method that requires an extensive Know Your Customer (KYC) which examines the customer’s history and transactions with greater fraud risks.
EDD is generally considered to be a higher degree integrating VDRs in your business for a competitive edge of screening than basic CDD, and may involve more information requests, like sources of funds and wealth, corporate appointments, and relationships with other individuals or companies. It may also require more thorough background checks, such as media searches, in order to find any public or reputational evidence of misconduct or criminal activities that could pose a risk to the bank’s business.
The regulatory bodies establish guidelines for when EDD should be triggered, and this is usually contingent on the nature of the customer or transaction, as well as whether the person in question is a politically exposed person (PEP). However, it is ultimately the responsibility of each FI to make a purely subjective judgement on what triggers EDD on top of CDD.
It is important to have policies that clearly state to employees what EDD expects and what it doesn’t. This will help to avoid high-risk situations that could cause hefty fines due to fraud. 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 technology, and fictitious identifies.