Enhanced due diligence (EDD) is a type of risk based due diligence that allows companies to manage high-risk transaction and customers while still complying with the laws. If properly implemented, enhanced due diligence shields businesses from serious damage to reputation and legal sanctions while ensuring that their Anti-Money Laundering and Customer Due Diligence processes are effective at combating financial crimes.
In most cases, EDD is required when a customer or transaction is deemed high-risk due to complicated ownership structures, political exposure, or involvement in industries that are susceptible to financial criminal activity. Additionally, a significant change in customer behavior such as an increase in transaction volume or transactions that aren’t well-known could require an EDD. Additionally, any transaction that involves the region or country that poses higher risks of financial terrorism and money laundering requires an EDD.
EDD focuses on the identification of beneficial owners, while revealing risk factors, including the true beneficiaries of a particular account or transaction. It also identifies unusual or suspicious patterns in transactional behavior, and confirms the information through independent checks and interviews, website visits, and third-party verification. The risk assessment is completed by a review of the local market’s reputation using media sources, and existing AML policy.
EDD is not only a requirement for regulatory compliance; it’s an essential component of safeguarding the integrity of the global financial system. Implementing EDD procedures that are effective is more than a matter for compliance. It’s an investment into the safety and security the global financial system.
VDRs: the touchstone of excellence in business data management
