The standard procedure of due diligence on the part of the customer may not be adequate for high-risk clients. This is why enhanced due diligence (EDD) is required and involves deeper investigation to identify potential money laundering and terrorist financing risks. EDD research helps businesses to comply with regulations and protects their reputation.

Imagine that someone downloads your app to create an account that is brand new. They’ve passed the identity verification tests and your examination of their financial history raises no alarms. That’s good news, but it could still be negative for your company. This is because the new customer could be a part of criminal enterprises that are trying to hide funds from illegal activities like corruption, drug trafficking or terrorism. This is why it’s crucial for banks to perform additional due diligence that is based on risk on new and existing customers.

In most cases, EDD is required for businesses involved in high-risk industries such as high-risk countries or any other business that requires special attention. EDD searches can include a search on lists of sanctions and criminal watchlists to ensure that the firm does not do business with people or businesses that are that are banned by regulatory agencies.

A typical EDD investigation will include information such as a complete background profile of the client, the source and destination of the money, and other indicators of financial crime such as the presence of PEPs, financial criminals or negative media. It can also include detailed details regarding a customer’s beneficial ownership structure, such as the identification of the individuals who control or own the legal entity as well as the source of wealth and their sources of funds.

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