Fighting Dirty Money With Enhanced Due Diligence

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Around $2tn of illicit cash flows annually through the global financial system, despite efforts by financial institutions and regulators. To fight dirty money, enhanced due diligence (EDD) is a method that involves an extensive Know Your Customer (KYC) which investigates customers in depth as well as transactions that carry higher fraud risks.

EDD is considered a higher screening level than CDD and can contain more information requests like sources and corporate appointments, funds and relationships with individuals or companies. It typically involves more thorough background checks, like media searches, to discover any publicly available evidence or reputational evidence of criminality or other misconduct that could threaten the bank’s operations.

The regulatory bodies have rules on when EDD should be triggered. This is usually based on the nature of the transaction or the customer, as well as if the person involved is politically exposed (PEP). It is up to each FI to decide if they want to include EDD to CDD.

It is crucial to establish policies that clearly communicate to employees what EDD expects and what it doesn’t. This will help to avoid high-risk situations that could result in hefty fines for fraud. It’s also important to have a thorough process for identity verification that can help you spot warning signs such as hidden IP addresses, spoofing technologies, and fictitious identities.