Fighting Dirty Money With Enhanced Due Diligence

Around $2 trillion of illicit cash flows annually through the financial system worldwide, despite efforts by regulators and financial institutions. One way to tackle illicit money is to use enhanced due diligence (EDD), a deep know your customer (KYC) process that examines transactions that have higher risk of fraud.

EDD is regarded as a more thorough screening level than CDD and can include more information requests, including sources and corporate appointments, money, and connections with companies or individuals. It often involves more thorough background checks, like homepage media searches, in order to find any publicly available evidence or reputational evidence of criminal conduct or misdeeds that could pose a threat to the bank’s operations.

Regulatory bodies have guidelines on when EDD should be triggered. It is typically based on the nature of the transaction or customer, as well as if the individual in question is politically exposed (PEP). However, it is the responsibility of each FI to take a subjective judgement on what triggers EDD on top of CDD.

The key is to formulate guidelines that make it clear to staff members what EDD needs, and what it doesn’t. This helps to avoid situations that are high-risk and can lead to substantial fraud fines. It is important to establish an identity verification procedure in place that lets you detect red-flags such as hidden IP addresses, spoofing technologies and fictitious identities.