Enhanced due diligence is a risk-based due diligence procedure that allows businesses to effectively manage transactions and customers at risk while remaining compliant with the regulations. When properly implemented it protects businesses from significant legal penalties and reputational damage while ensuring that their Anti-Money Laundering (AML) and Customer Due Diligence (CDD) processes are effective in combating financial crime.
In most cases, EDD is required when a customer or transaction is classified as high-risk due to complex ownership structures, political exposure or involvement in sectors that are prone to money laundering or financial criminal activity. A significant change in the customer’s behavior, such an increase in the volume of transactions or new kinds of transactions, may also require an EDD. Furthermore any transaction that involves a country or a region with higher risks of money laundering or financing for terrorism will require an EDD.
EDD concentrates on finding beneficial owners and identifying undiscovered risks, like the true beneficiaries in a transaction or a account. It also identifies unusual and suspicious patterns of behavior in transactions and confirms the information by independent interviews and checks, site visits and confirmation from a third party. The risk assessment is completed through a review of local market’s reputation using media sources, as well as the current AML policy.
EDD is not only a regulation requirement; it’s a crucial element of protecting the integrity of our global financial system. Implementing EDD procedures that are efficient is not just a matter for compliance. It’s an investment into the safety and security of the global financial system.
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