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Every year, around $2tn of illicit cash flows into the global financial system, despite the efforts of financial institutions and regulators to stop the laundering of money and financing terrorists. To fight dirty money, enhanced due diligence (EDD) is a procedure that involves a thorough Know Your Customer (KYC) that digs deep into customers and transactions with higher fraud risks.
EDD is considered 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, such as media searches, in order to find any publicly available evidence or evidence of reputational proof of criminal activity or misconduct that could jeopardize the bank’s operations.
The regulatory bodies have guidelines for when EDD should trigger. This is usually based upon the type of transaction or customer, as well as whether the individual in question is politically exposed (PEP). It is the decision of each FI whether they would like to add EDD to CDD.
It is important to have policies that clearly state to employees what EDD expects and what it does not. This can help to avoid high-risk situations that lead to huge fines for fraud. It is crucial to establish an identity verification procedure in place that can identify red flags like hidden IP addresses, spoofing technologies, and fictitious identifies.