What is Enhanced Due Diligence?

Enhanced Due Diligence means an advanced KYC due diligence process that provides further risk investigation. EDD is designed to handle high-risk customers and large transactions. High-risk customers and suspicious transactions pose a greater risk to the financial sector, and CDD procedures might not detect them. Therefore, companies use EDD procedures to create a higher identity assurance by taking the customer's identity and addressing and evaluating the customer's risk category. EDD procedures lower the chances of money laundering and terrorist financing through organizations by detecting and investigating high-risk customers and suspicious transactions.

When Do Companies Need Enhanced Due Diligence?

Companies are required to use Enhanced Due Diligence procedures if they are doing business with the following organizations or individuals:

  • Any business in a country on the High-Risk Third Countries list
  • Politically Exposed Persons (PEPs) or their close circles, such as family members
  • Companies in sectors with a higher risk of money laundering, such as gambling 
  • Shell corporations
  • Companies that funded terrorist activities and blacklisted
  • Private and correspondent banking

EDD | KYC Compliance 

EDD compliance is implemented with Regtech solutions, such as KYC due diligence compliance solutions. These solutions provide many advantages to companies, such as identifying key risk factors and using accurate information in a well-structured format. 

Enhance Due Diligence in Banking

The banking industry is very dynamic. Regulations and technologies in this sector are changing fast. Big corporates need to comply with regulations, specifically financial crime regulations. Some customers may trigger enhanced due diligence software with suspicious activities or backgrounds. High-risk corporates such as banks need to take the Enhanced Client Due Diligence program seriously so as not to face any penalties and protect their reputation. 

What Are EDD Procedures?

Using A Risk-Based Approach

It will help you detect and investigate high-risk customers. Accurately evaluating the customer's risk level is essential for your AML compliance as they might launder money or commit financial crimes through your business. Companies that don't have strong AML compliance programs might face penalties from authorities.

Finding Additional Credentials

Create a checklist for your AML BSL policies for high-risk customers. This advanced due diligence checklist provides all the necessary details about your customer.

Analyzing the Origin and Ultimate Useful Ownership (UBO) of Funds

Companies need to understand the origin and legitimacy of the customer's wealth. They need to verify that the value of all of their customer's non-financial and financial assets is related to their real assets. Inconsistencies between earnings, wealth source, and net worth should be detected and investigated. Subsidiaries and shareholders of businesses should be checked in determining the Ultimate Useful Ownership (UBO) of an organization/company.

Tracking Ongoing Transactions

If a customer has a transaction history, it should be checked. The transaction details, such as purpose and nature, should be investigated based on their processing times and interested parties. Companies should ensure that the accuracy of this step meets the expected threshold.

Adverse Media and Negative Control

Companies should analyze relevant press articles to create a full profile of their customers' reputations. Negative results might mean the individual or organization might be too risky to do business with. 

Visit On-Site

On-site visits to physical addresses are essential for all legal entities. Documents that cannot be digitally gotten might be physically verified. The individual or organization might be risky to do business with if the physical address does not match the official address on documents.

Writing Report Paper to Investigate

Businesses should understand the basic parameters to implement a risk-based approach. Companies can create their risk factors based on their industry. Corporations might regularly scan their customers and write a report paper of their activities using AML compliance software.

Developing an Ongoing Risk-Based Monitoring Strategy

Continuous monitoring of high-risk customers takes time. Therefore, it is best to use a risk-based monitoring strategy. Businesses can use software to alarm them based on their customers' profiles or when they make any suspicious activity.

Why is Enhanced Due Diligence so Important?

Financial criminals find more ways to launder money, fund terrorist groups, track drugs, and more as technology advances. Therefore, businesses also should use the power of technology to detect financial crimes and investigate them. Enhanced Due Diligence helps companies learn more about their customers by scanning their risk profiles, background, etc. It reduces the workload of companies and makes them focus on growing their businesses more. Enhanced Due Diligence software use data such as Sanctions lists, PEPs lists, and Adverse Media.