Enhanced due diligence (EDD) is a type of risk based due diligence process that permits companies to manage high-risk transactions and customers while still complying with the regulations. When properly implemented enhanced due diligence safeguards companies from severe legal penalties and reputational damages while ensuring their Anti-Money Laundering and Customer Due Diligence procedures are effective in combating financial crimes.

EDDs are usually required when a customer or transaction is classified as high risk due to the complexity of ownership structures or political exposure. EDDs may also be required when the customer is involved in an industry that is prone to financial crime or laundering. Additionally, a significant shift in the behavior of a customer like an increase in volume of transactions or transactions that aren’t well-known might require an EDD. Finally, any transaction that involves a particular country or region with higher risks of money laundering or financing for terrorism is likely to require an EDD.

EDD focuses on the identification of beneficial owners and uncovering hidden risks like the true beneficiaries in an account or transaction. It also detects suspicious or unusual patterns in transactional behavior, and confirms the information through independent checks and interviews, website visits, and third-party verification. Additionally, a thorough review of local market reputation through media sources and current AML policies round out the risk evaluation.

EDD is not only a regulation requirement; it’s a crucial element of safeguarding the integrity of the global financial system. Implementing efficient EDD procedures isn’t just about compliance; it’s an investment in the safety and security of the global financial system.

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