Enhanced due diligence is a crucial aspect of AML compliance for companies that deal with high-value transactions or customers who are prone to money laundering and other financial crime. It helps remove the most risky customers and prevent them from donating to terrorist groups and other criminal groups.
While the normal customer due diligence is designed to determine the identity of a client however, the EDD procedure is more comprehensive and requires a greater variety of checks. This includes collecting more identification documents as well as performing thorough checks on a customer’s whereabouts and sources of funds. This type of due diligence is generally applied to high-risk customers, such as politically exposed individuals (PEPs) or those who are located in high-risk areas, and individuals or businesses which are cash-intensive.
The more complex the person, legal entity or transaction, the more thorough the EDD procedure should be. Regulators typically prefer a risk-based approach, which employs documented risk assessment procedures to determine the degree of scrutiny needed for each case. The EDD process also includes gathering more complete information, which includes information about the person’s customers suppliers, corporate/legal structures and clients. EDD procedures are more expensive and time-consuming. They also require higher level of documentation than CDD procedures. It is crucial to have an identity verification system that’s both effective and efficient like 1Kosmos’ BlockID, to make the process easier for your business.
