Enhanced due diligence (EDD) is a risk based due diligence method that allows businesses to manage high-risk transactions and customers while remaining compliant with regulations. If properly implemented enhanced due diligence safeguards companies from severe reputational and legal damages while ensuring that their Anti-Money Laundering and Customer Due Diligence procedures are effective in combating financial crimes.
EDDs are generally required when a particular transaction or customer is classified as high risk due to complicated ownership structures or political risk. They may be required if the customer is in a field that is susceptible to financial crime or laundering. In addition there is a significant shift in the behavior of a customer for example, an increase in transaction volume or a change in the type of transactions might require an EDD. Also, any transaction involving any region or country that poses higher risks of financial terrorism and money laundering requires an EDD.
EDD concentrates on the identification of beneficial owners, uncovering hidden risks, such as the true beneficiaries of a transaction or account. It also detects unusual or suspicious patterns of transactional behavior and confirms the information through independent checks or interviews, visits to sites, and third-party verification. A examination of the reputation of local markets via media sources and the existing AML policies are also part of the risk assessment.
EDD is not only a regulation requirement; it’s a crucial element of safeguarding the integrity of the global financial system. Implementing EDD procedures that work is not just a matter for compliance. It’s an investment into the safety and security the global financial system.