enhanced due diligence (EDD) is a risk based due diligence process that permits companies to manage high-risk transaction and customers while remaining compliant with the regulations. When properly implemented it protects businesses from significant legal and reputational harm while ensuring that their Anti-Money Laundering (AML) and Customer Due Diligence (CDD) procedures are efficient in combating financial crime.
Most of the time, EDD is required when the transaction or customer is deemed to be high-risk because of complex ownership structures, political exposure, or involvement in sectors that are prone to money laundering or financial crime. A significant change in customer’s behavior, for example, an increase in the volume of transactions, or the creation of new types of transactions, may also require an EDD. Lastly, any transaction involving the region or country with a higher risk of money laundering and terrorism financing requires an EDD.
EDD concentrates on identifying beneficial owners and uncovering undiscovered risks, like the true beneficiaries in the transaction or account. It also identifies unusual or suspicious patterns in transactions, and confirms the information through independent checks, interviews, site visits and third-party verification. Additionally, a review of the local market’s reputation through media sources and existing AML policies are also part of the risk evaluation.
EDD is not only a requirement for regulatory compliance; it’s an essential element in safeguarding the integrity of global financial system. Implementing efficient EDD procedures is not only a matter of compliance, it’s an investment in the security and safety of the global financial system.
