Every year, more than $2tn worth of illicit cash flows through the financial system worldwide, despite the efforts of regulators and financial institutions to stop money laundering and terrorist financing. To stop dirty money, enhanced due diligence (EDD) is a process that involves an extensive Know Your Customer (KYC), which digs deep into customers and transactions that have higher risk of fraud.

EDD is considered to be a higher screening level than CDD and may include more information requests like sources and funds, corporate appointments and associations with companies or individuals. It is often accompanied by more thorough background checks, like media searches, in order to find any publicly available evidence or reputational evidence of misconduct or criminal activity that could jeopardize the bank’s operations.

The regulatory bodies have guidelines for when EDD should be triggered, and this is typically based on the nature of the customer or transaction and also whether the individual in question is a politically exposed individual (PEP). However, it’s ultimately the responsibility of each FI to take a subjective decision about what triggers EDD in addition to CDD.

It is crucial to establish policies that clearly explain to employees what EDD expects and what it is not. This will allow you to avoid high-risk situations that could result in substantial fines for fraud. It is essential to have an identity verification process in place that will allow you to identify red flags like hidden IP addresses, spoofing tools and https://warpseq.com/what-is-enhanced-due-diligence-bsa/ fictitious identifications.