For high-risk customers, the standard customer due diligence (CDD) process might not be enough. That’s why enhanced due diligence (EDD) is crucial: it consists of deeper investigation to identify potential money laundering and terrorist financing risk. EDD research assists businesses to adhere to regulations and protect their reputation.
Imagine someone downloading your app to open an account for the first time. They’ve passed the identity verification checks and the check of their financial history does not raise red flags. It’s good to top secure and reliable online storages hear that, but there could be bad news. This is because the customer may be involved in criminal activity that is trying to smuggle money from illegal activities such as corruption, drug trafficking, or terrorist activity. It’s important for banks to perform due diligence that is based on risk with regard to new and existing customers.
EDD can be required in many instances for companies operating in high risk sectors, high risk countries, or any other sector requiring special scrutiny. EDD searches can include a lookup of sanctions lists and criminal watchlists to ensure that the company is not doing business with any of the companies or individuals that are prohibited by regulatory agencies.
Typically an EDD investigation includes details such as a thorough background profile of the client and the source and destination of the funds; and other indicators of financial crime, such as adverse media or the presence of a known PEPs or financial criminals. It may also contain detailed details of a client’s beneficial ownership structure, including the identification of those who control or own the legal entity and the source of wealth and their sources of funds.