Enhanced due diligence (EDD) is a set of additional measures that financial institutions have to implement to check and monitor high-risk customers and unusual transactions for potential money laundering and terrorist financing (ML/TF) activities. Enhanced due diligence (EDD) is an in-depth KYC process that can help to identify high-risk customers including politically exposed persons (PEPs). Hence, Financial Institutions should take a risk-based approach to determine what measures to put in place and for how long.
The following are EDD practical steps suggested by the FATF.
Accessing additional identifying information from a wider variety of sources
Carrying out additional searches
Verifying the source of funds involved to ensure they are not proceeds from crime
Gaining additional information from the customer about the purpose and nature of business relationships
Commissioning an intelligence report on the customer or beneficial owner
How does the enhanced due diligence process work?
According to FATF guidance, companies should implement risk-based EDD measures that reflect the specific AML/CFT risk that individual customers present. These should include:
Obtaining additional customer identification materials
Establishing the source of funds or wealth
Applying closer scrutiny to the nature of the business relationship or the purpose of a transaction
Implementing ongoing monitoring procedures
For many of the persons and entities identified, enhanced due diligence will be a standard part of their relationship with a firm.
An alert could also trigger EDD in a transaction monitoring system if it’s flagged for further investigation. Additional information – either from a relationship manager or the client – may be needed, and firms should make internal and external inquiries to learn more about the customer and the transaction.
Source: FATF website
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