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Every year, more than $2tn worth of illicit cash flows through the financial system around the world, despite the efforts of regulators and financial institutions to prevent money laundering and terrorist financing. One method to combat the dirty money is to implement enhanced due diligence (EDD) that is a comprehensive know your customer (KYC) process that focuses on transactions that have higher risk of fraud.

EDD is regarded as a more thorough screening level than CDD and can also include more information requests such as sources and corporate appointments, funds and relationships with individuals or companies. It typically involves more thorough background checks, including media searches, in order to discover any publicly available evidence or evidence of reputational proof of criminality or other misconduct that could be a threat to the bank’s operations.

The regulatory bodies have guidelines for when EDD should be triggered. This is usually dependent on the kind of transaction or customer, as well as if the individual in question is politically exposed (PEP). It is the decision of each FI whether they would like to add EDD to CDD.

The most important thing is to establish guidelines that make it easy for staff to understand what EDD requires, and what it doesn’t. This will help avoid situations that are high-risk and can lead to substantial fraud fines. It is essential to have a process for identity verification in place that can identify red flags, such as hidden IP addresses, spoofing tools and fictitious identifications.