Each year, about $2tn in illicit cash flows enter the global financial system, despite the efforts his explanation of Board Software Pricing Breakdown of regulators and financial institutions to stop the laundering of money and financing terrorists. One method to combat the dirty money is to implement enhanced due diligence (EDD), a deep know your customer (KYC) process which focuses on transactions and customers that pose greater fraud risks.
EDD is generally thought to be a higher level of screening than basic CDD, and may involve more information requests, like sources of wealth and funds, corporate appointments, and associations with other individuals or companies. It can also involve more extensive background checks, which may include media searches, which are used to determine any publically available or reputational evidence of misconduct or criminal activities that could pose a risk to the bank’s business.
The regulatory bodies have guidelines for when EDD should be activated. This is typically based on the nature of the transaction or customer and whether the person in question is a politically exposed individual (PEP). However, it’s ultimately the responsibility of each FI to make a personal judgement on what triggers EDD on top of CDD.
The key is to formulate good policies that make it easy for staff to understand what EDD requires and what it does not. This will help avoid high-risk situations that could lead to hefty fraud fines. It’s important to establish an identity verification procedure in place that can detect red-flags such as hidden IP addresses, spoofing techniques and fictitious identifiers.