Around $2 trillion of illicit cash flows per year through the global financial systems despite efforts from regulators and financial institutions. One method to combat dirty money is through enhanced due diligence (EDD) which is a thorough know your customer (KYC) process that digs into transactions that have higher risk of fraud.
EDD is regarded as a more thorough screening level than CDD and may include more information requests such as sources and corporate appointments, funds and connections with individuals or companies. It also often involves more extensive background checks, like media searches to discover any reputational or publically available evidence of misconduct or criminal activity that could create risks to the bank’s business.
The regulatory bodies provide guidelines on when EDD should be triggered, and this is usually based on the type of customer or transaction and also whether the person concerned is a politically exposed person (PEP). However, it is the responsibility of each FI to take a subjective decision about what triggers EDD on top of CDD.
The key is to formulate good policies that make it clear to employees what EDD requires and what it does not. This will help avoid high-risk scenarios that could cause hefty fines due to fraud. It is important to have a verification process for your identity in place that can identify red flags like hidden IP addresses, spoofing technologies and fictitious identifiers.