What is Enhanced Due Diligence?

Enhanced Due Diligence Guide

    What is EDD? EDD is designed to handle high risk and large transactions. Risky customers and transactions pose a greater risk for the financial sector and cannot be detected by CDD, in this case, EDD is used. In addition, Enhanced Due Diligence is a KYC due diligence process that provides a greater level of scrutiny highlights risk. EDD, which exceeds CDD, tries to create a higher identity assurance by taking the customer ID and address and evaluating the customer's risk category. Moreover, When there is an increased opportunity from money laundering, terrorist financing through your service and product or customer, it may present a high-risk situation, therefore EDD is required to reduce the increased risk.

    What Are Enhanced Due Diligence Factors?

    There are obvious legal features that often require EDD automatically. For instance;

      Customer Due Diligence (CDD) is a process for gathering information about the customer. Some customers or work partners create more financial crime threats for companies. Enhanced Due Diligence (EDD) is the KYC (Know Your Customer) process that enables the review of high-risk individuals or companies.

      • In Europe, any business in a country on the High-Risk Third Countries list requires EDD.
      • Politically Exposed Persons (PEPs) or close partners or family members should undergo a more extensive review process.
      • Industries with a higher risk of money laundering, such as gambling, often have EDD requirements.
      • Some relationships, like shell banks, also require EDD.
      • Countries recognized for common levels of corruption identified by reliable sources
      • Blacklisted countries to finance or support terrorist activities.
      • Private and correspondent banking.

        EDD Compliance

        EDD compliance implements with Regtech solutions such as KYC due diligence compliance solutions. These solutions provide many advantages to companies. One is to identify key risk issues and simplify EDD using accurate information in a well-structured format. However, many software solutions are quite inadequate, difficult to use, and have a low customer conversion rate. To prevent these from happening, you should choose software that suits your company's needs.

          EDD in Banking

          The banking industry is very dynamic. Regulations and technologies in this sector are changing very fastly. Big corporates need to comply with regulations, specifically on financial crime regulations. Specific customers may trigger enhanced due diligence analyses based on particular behaviors. High-risk corporates such as banks need to control the Enhanced Due Diligence program carefully. 

          What Are EDD Procedures?

          Use a Risk-based Approach

          You need to start by recognizing and separating high-risk customers. Evaluating the customer's risk level correctly is an important measure for this approach. All these factors should be reflected in your AML compliance policy.

          Find 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.

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

          The logic in this step is to understand the origin and legitimacy of the customer's wealth. For effective analysis, you need to verify that the value of all of your customer's non-financial and financial assets is related to their real assets. Inconsistencies between earnings, wealth source and net worth should be eliminated. 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 and access to transaction details such as its purpose and nature. Details such as processing times and interested parties should not be ignored. Make sure that these procedures are required for the purposes of choice and at the expected threshold values.

          Negative Media and Negative Control

          Analyze relevant press articles to create a full profile of your customer and reputation. Negative results are an indication that there is too much risk for the business. However, if the results are positive, the next step should be taken.

          Visit On-site

          On-site visits to physical addresses are an essential requirement for all legal entities, including banks and companies. Documents that cannot be digitally sourced can be physically verified. If the physical address does not match the address in the official documents, high risk is detected.

          Prepare Your Report For More Investigation Strategy

          To implement a risk-based monitoring strategy, you need to understand the basic parameters. You also need to set up a periodic timeline to monitor and review your data. The EDD report can be stored on a secure server with the information obtained.

          Develop 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.

          Why Is EDD Important? 

          EDD gives you more reviews from partners. This allows you to identify risks that cannot be detected by the CDD. While the scope and details of EDD procedures are expanding, the technologies that address them are improving. There are solutions to address risk, protect or grow your business. As cybercrimes and financial crimes increase, financial institutions need to focus not only on stopping the flow of money laundering and corruption but also on being seen as rigorous custodians of their customers' data and cash. Adopting KYC and EDD processes proves that your focus to your customers and potential customers is legal. With EDD, you can recognize your customers, make sure they are real, confirm that they are not on prohibited lists, and assess risk factors thus counteract money laundering, financing terrorism and more fraud. That's why, you not only get to know your customers and serve them better, but you also get the opportunity to focus more on growing your business thanks to EDD. 

          Sanction Scanner provides solutions that support AML and KYC compliance processes of businesses. With Sanction Scanner, businesses can scan their customers or partners between sanction, AML and PEP data from more than two hundred countries. You can contact us for information about our AML compliance solutions.

          Request a demo and learn how Sanction Scanner protects your firm from the Financial Crimes.

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