Enhanced due diligence is an essential component of AML compliance for businesses that handle high-value transactions and/or customers that are susceptible to money laundering and other financial crime. It helps identify the most risky customers and prevent them from funding terrorist groups and other criminal organizations.
While the standard customer due diligence is designed to verify the identity of a client However, the EDD procedure is more comprehensive and requires a more extensive checks. These include obtaining more identification documents, conducting rigorous verification of the IDs, and conducting thorough tests to verify the location of a customer as well as the source of funds, known business relationships and others. Due diligence is often used on high-risk clients, like politically-exposed people (PEPs) and those from high-risk nations, and businesses or individuals who depend heavily on cash.
The more complex a person, legal entity or transaction, the more thorough the EDD process should be. Regulators usually prefer an approach based on risk that utilizes documented risk assessment guidelines to determine the level of scrutiny required for each situation. The EDD procedure also involves gathering more comprehensive information, including details on the person’s customers suppliers, corporate/legal structure and other clients. EDD processes are generally more expensive, time-consuming and demanding of more documentation than CDD procedures. It is crucial to have an identity verification system that is efficient and effective, such as 1Kosmos’ BlockID, to make the process simpler for your business.