Around $2 trillion in illicit cash flows each year through the global financial system, despite efforts by regulators and financial institutions. To combat dirty money, enhanced due diligence (EDD) is a procedure that involves a thorough Know Your Customers (KYC) that examines the customer's history and transactions that have higher fraud risks.
EDD is considered a higher screening level than CDD and can include more information requests, including sources and corporate appointments, funds, and connections with individuals or companies. It also often involves more in-depth background checks, including media searches, to identify any publically available or reputational evidence of criminal activity that could pose danger to the bank's business.
The regulatory bodies establish guidelines for when EDD should be activated, and this is usually dependent on the kind of transaction or customer and also whether the person in question is a politically exposed person (PEP). It is up to each FI whether they want to add EDD to CDD.
It is crucial to establish policies that clearly state to employees what EDD expects and what it does not. This will help avoid high-risk situations that could result in hefty fines for fraud. It's also crucial to have what is enhanced due diligence bsa an accurate identity verification process that allows you to spot red flags like hidden IP addresses, spoofing technology, and fictitious identities.