Every year around $2tn in illicit cash flows enter the financial system worldwide, despite the efforts of financial institutions and regulators to stop the laundering of money and financing terrorists. One way to fight illicit money is to use enhanced due diligence (EDD) and a comprehensive know your customer (KYC) process which focuses on transactions and customers that pose greater risk of fraud.
EDD is generally considered to be more thorough of security than CDD and could involve more information requests, including sources of funds and wealth corporate appointments, associations with other individuals or companies. It is often accompanied by more thorough background checks, like media searches, to identify any publically available evidence or reputational evidence of criminal conduct or misdeeds that could threaten the bank’s operations.
The regulatory bodies have guidelines for 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). It is the decision of each FI whether they would like to include EDD to CDD.
The most important thing is to develop good policies that make it easy for staff to understand what EDD needs and what it does not. This helps to avoid high-risk situations that could lead to significant fraud fines. It is important to have an identity verification process in place that will allow you to identify red flags, such as hidden IP addresses, spoofing technology and fictitious identities.
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