Enhanced due diligence is a risk-based due diligence process that allows businesses to effectively manage transactions and customers with high risk while remaining compliant with the regulatory requirements. If implemented correctly enhanced due diligence safeguards businesses from serious legal penalties and reputational damages while ensuring their Anti-Money Laundering and Customer Due Diligence procedures are effective in combating financial criminals.
In most cases, EDD is required when a customer or transaction is classified as high-risk due to complicated ownership structures, political exposure or involvement in industries that are susceptible to money laundering or financial crime. Additionally an important shift in the behavior of a customer, such as an increase in volume of transactions or transactions that aren’t well-known, may require an EDD. Also, any transaction involving an area or country that poses higher risks of terrorist financing and money laundering requires an EDD.
EDD is focused on the identification of beneficial owners, and uncovers hidden risk factors, including the real beneficiaries of a transaction or account. It also identifies suspicious and unusual patterns of transactional activity and validates the information with independent interviews and checks, website visits and third-party confirmation. Additionally, a examination of the local market’s reputation through media sources and existing AML policies round out the risk evaluation.
EDD is more than a requirement for compliance It’s an essential part safeguarding the integrity of the global financial system. Implementing effective EDD procedures is not just a matter of compliance–it’s an investment in the safety and security of the global financial system.