When a company or client poses a higher risk of money laundering, terrorist financing and other financial crimes, they must be subject to an additional degree of due diligence. This is referred to as enhanced due diligence, which goes above and beyond the standard KYC/AML checks to collect information outside the basic scope.
This includes identifying people and entities behind customers, like the ultimate beneficial ownership (UBO) in revealing the true source for wealth as well as funds and business activity. It also probes underlying relationships as well as investigates unproven transactions and activities that may be a sign of hidden dangers.
It’s an important component in the fight against the funding of terrorists and criminals. However it’s crucial to note that EDD must be considered on a case-by-case basis. For instance, an account opening in the UK with a clean passport, a solid address history, and no CCJs might only require CDD. However, a different client might require EDD because of a high volume of cash deposit or complex transactions.
The best way to assess the necessity for EDD is to develop an exhaustive risk assessment and screening framework. This should include both internal controls as well as external factors such a negative media, political instability and sanctions, financing of terrorism and organized crime, as well as fraud.
Ultimately, effective due diligence isn’t just about complying with regulatory requirements or safeguarding your brand’s reputation. It’s about making a difference on the fight against worldwide crime. You need an identity verification and EDD system that is swift, accurate, and cost-effective to achieve this.