The standard procedure of customer due diligence may not be sufficient for high-risk customers. That’s why enhanced due diligence (EDD) is necessary and involves deeper investigations to look for money laundering and terrorist financing risks. EDD research helps businesses to comply with regulations and safeguard their reputation.
Imagine that someone downloads your banking app to open a new account. They’ve cleared your identity verification checks and the check of their financial history doesn’t raise any warnings. That’s good news, but it could still be negative for your business. That’s because the new customer could be part of criminal activity that is trying to hide money from illicit activities like corruption, drug trafficking or terrorism. This is the reason it’s important banks perform additional due diligence based on risk on both existing and new customers.
In most cases, EDD is required for companies that are involved in high-risk industries, high-risk countries, or any other field which requires a enhanced due diligence in banking sector analysis special examination. EDD searches can include searches of criminal watchlists and sanctions lists to make sure that the company isn’t doing business with any company or individuals who are banned by regulatory bodies.
Typically an EDD investigation includes details like a full background profile of the customer; the location and source of the funds, and other indicators of financial crime, like adverse media or the presence of known PEPs or financial criminals. It may also contain detailed details regarding a customer’s beneficial ownership structure, including the identity of the people who have control over or are the owners of the legal entity and the source of wealth and their sources of funds.