enhanced due diligence (EDD) is a type of risk based due diligence that allows companies to manage high-risk transactions and customers while still complying with the regulations. When properly implemented, enhanced due diligence protects businesses from serious reputational and legal penalties while ensuring that their Anti-Money Laundering and Customer Due Diligence processes are effective at combating financial criminals.
EDDs are usually required when a transaction or customer is deemed to be high risk due to the complexity of ownership structures or political exposure. They can also be required when the customer is involved in an industry susceptible to financial crime or laundering. A significant change in customer’s behavior such as an increase in volume of transactions or new types of transactions could be a reason for an EDD. Finally, any transaction that involves a country or region with higher risks of money-laundering or terrorism financing will require an EDD.
EDD focuses on the identification of beneficial owners and uncovering hidden risks such as the true beneficiaries in transactions or accounts. It also identifies suspicious or unusual patterns in transactional behavior, and confirms the information through independent checks, interviews, site visits and third-party verification. The risk assessment is completed by a thorough examination of the local market’s reputation through media sources, and existing AML policy.
EDD is more than a requirement to ensure compliance it’s a vital element of protecting the integrity of the global financial system. Implementing efficient EDD procedures is not just a matter to be complied with, it’s an investment in the security and safety of the global financial system.
