enhanced due diligence (EDD) is a risk based due diligence process that permits businesses to handle high-risk transactions and customers while still complying with regulations. When implemented correctly enhanced due diligence safeguards companies from severe reputational and legal damages while ensuring that their Anti-Money Laundering and Customer Due Diligence processes are effective at combating financial crimes.
EDDs are often required when a transaction or customer is deemed to be high risk due to complicated ownership structures or political risk. EDDs may also be required when the customer is in an industry that is prone to financial crime or money laundering. A significant change in customer’s behavior such as an increase in volume of transactions or new types of transactions may be a reason for an EDD. Lastly, any transaction involving a country or region that poses higher risks of financial terrorism and money laundering requires an EDD.
EDD is focused on identifying beneficial owners and uncovering hidden risks like the true beneficiaries in the transaction or account. It also identifies unusual or suspicious patterns in transactional behavior, and validates information with independent checks and interviews, website visits and third-party verification. Additionally, a review of local market reputation through media sources and current AML policies round out the risk assessment.
EDD is more than just a requirement to ensure compliance and is a crucial element of ensuring the integrity of the global financial system. Implementing EDD procedures that are effective is not just a matter for compliance. It’s an investment in the security and safety of the global financial system.