Every year, around $2tn of illicit cash flows into the global financial system despite the efforts of regulators and financial institutions to prevent money laundering and terrorist financing. One method to combat the dirty money is to implement enhanced due diligence (EDD) and a comprehensive know your customer (KYC) process that digs into customers and transactions with greater risk of fraud.
EDD is considered a higher screening level than CDD and can include more information requests, such as sources and corporate appointments, money, and relationships with individuals or companies. It can also involve more extensive background checks, like media searches to discover any public 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 trigger. This is usually based upon the kind of transaction or customer, as well as whether the person concerned is politically exposed (PEP). However, it is ultimately up to each FI to take a subjective judgment call about what triggers EDD on top of CDD.
The key is to create solid policies that make it clear to employees what EDD is and what it isn’t. This can help to avoid high-risk situations that lead to substantial fraud fines. It’s also important to have a thorough identity verification procedure which allows you to identify alarms such as hidden IP addresses, spoofing technologies and fake identities.
demystifying complex transactions with VDR’s organized layout
