Enhanced due diligence (EDD) is a risk based due diligence method that allows companies to manage high-risk transaction and customers, while also ensuring compliance with regulations. If properly implemented enhanced due diligence safeguards companies from severe reputational and legal damages while ensuring their Anti-Money Laundering and Customer Due Diligence procedures are effective in combating financial crimes.
Most of the time, EDD is required when a customer or transaction is classified as high-risk due to complicated ownership structures, political exposure or involvement in industries that are susceptible to financial criminality. A significant change in customer’s behavior, such an increase in volume of transactions or the introduction of new types of transactions could also require an EDD. In addition, any transaction that involves a particular country or region that is more susceptible to money laundering and financing terrorism will require an EDD.
EDD is focused on the identification of beneficial owners, while revealing risk factors such as the true beneficiaries of a particular account or transaction. It also detects suspicious and unusual patterns of transactional behavior and validates the information with independent checks and interviews, site visits and third-party verification. A examination of the local market’s reputation through media sources and current AML policies complete the risk evaluation.
EDD isn’t only a regulation requirement; it’s an essential part of protecting the integrity of the global financial system. Implementing efficient EDD procedures isn’t only a matter of compliance, it’s an investment in the safety and security of the global financial system.
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