The Importance of Enhanced Due Diligence

The standard procedure of customer due diligence may not be enough for clients with high risk. That’s why enhanced due diligence (EDD) is required: it consists of deeper investigation to identify potential money laundering and terrorist financing risk. EDD research helps businesses to comply with the law and protect their reputation.

Imagine that someone downloads your banking application to open an account. They’ve passed your identity verification checks, and your check of their financial history raises no red flags. That’s great news, however it could still be negative for your company. This is because the new customer may be involved in a criminal enterprise that’s trying to smuggle money from illicit activities like corruption, drug trafficking, or terrorist activity. It’s essential banks perform due diligence that is based on risk for new and existing clients.

In most cases, EDD is required for companies that are involved in high-risk industries and countries that are high-risk, or any other business that requires special attention. EDD searches can include searches on sanctions lists and criminal watchlists to ensure that the firm does not conduct business with people or companies restricted by regulatory authorities.

Typically, an EDD investigation includes information like a complete background profile of the buyer; the location and source of the funds; as well as other indicators of financial crime for instance, adverse media or the presence of known PEPs or financial criminals. Additionally, it can include details of a client’s beneficial ownership structure, such as the identification of the persons who are the owners or control the legal entity as well as the sources of wealth and money.

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