enhanced due diligence (EDD) is a risk based due diligence process that permits businesses to handle high-risk transactions and customers, while also ensuring compliance with the regulations. When properly implemented it shields businesses from significant reputational and legal penalties while ensuring that their Anti-Money Laundering (AML) and Customer Due Diligence (CDD) procedures are effective in combating financial crime.
Most of the time, EDD is required when the transaction or customer is deemed to be high-risk due to complicated ownership structures, political exposure, or involvement in industries that are susceptible to financial crime. A significant change in the customer’s behavior, like an increase in the volume of transactions or new kinds of transactions, may be a reason for an EDD. Lastly, any transaction involving a country or region that is more prone to money laundering or terrorism financing requires an EDD.
EDD concentrates on the identification of beneficial owners, revealing hidden risks, such as the true beneficiaries of a transaction or an account. It also identifies suspicious or unusual patterns in transactions, and confirms the information through independent checks interviews, site visits and third-party verification. Additionally, a examination of the reputation of local markets through media sources and current AML policies round out the risk evaluation.
EDD is more than a requirement for compliance and is a crucial element of protecting the integrity of the global finance system. Implementing efficient EDD procedures isn’t just a matter of compliance–it’s an investment in the security and safety of the global financial system.
