Enhanced  Due Diligence Management

Identify and investigate risky customers and financial crime.

Enhanced Due Diligence Management

According to regulatory advice, customers' money laundering and terrorist funding threats must be identified and evaluated. During the onboarding process for new customers, firms should conduct a series of tests (risk and compliance checks) to detect any financial crime risks. It is possible to use a risk-based method using due diligence software to determine the appropriate level of due diligence to use, such as the following: Simplified Due Diligence, Customer Due Diligence, and Enhanced Due Diligence.

What Is Enhanced Due Diligence?

Due Diligence that goes beyond basic KYC checks is referred to as Enhanced Due Diligence (EDD). Big transactions and high-risk customers are the focus of EDD. There is a larger risk to the banking industry since Customer Due Diligence processes may not be able to identify high-risk consumers and suspicious activities. As a result, businesses employ Enhanced Due Diligence methods to enhance customer identity assurance by addressing and analyzing the client's risk category based on the customer's identification. Organizations may avoid money laundering and terrorist funding by using Enhanced Due Diligence Management to identify and investigate risky customers and financial crime with the help of best due diligence software.

Who Requires Enhanced Due Diligence?

When a firm has ties with high-risk clients, such as those who represent a greater risk of money laundering or terrorism funding, it needs Enhanced Due Diligence Management - a third party compliance and due diligence software. Some of these factors may include where the consumer is located, the things they will be using (or their town nature), and so on. In reality, this implies that organizations must be able to show that they have the verification and understand their consumers, who pose a larger risk.

What Attributes Would You Use to Identify a High-Risk Customer?

Customers at higher risk of money laundering include those in high-risk occupations and those who use high-risk banking goods and services. Financial institutions conduct EDD and continuous monitoring for consumers with a greater risk of default. Some attributes to identify a high-risk customer include, but are not limited to:

  • Customers from high-threat nations
  • Customers from industries with a high risk of fraud
  • A customer's beneficial ownership structure is too complicated or opaque
  • Unusual activity on the account
  • Absence of a clearly defined economic or legal objective
  • Entities that have the beneficiary ownership of a politically exposed person's close family
  • Those clients that have a questionable reputation based on publicly accessible information
  • Bullion dealers, jewelers, and real estate developers.

Which Countries Require Enhanced Due Diligence?

The high-risk countries that require EDD are:

  • Albania
  • Barbados
  • Botswana
  • Burkina Faso
  • Cambodia
  • Cayman Islands
  • Democratic People’s Republic of Korea (DPRK)
  • Ghana
  • Iran
  • Jamaica
  • Mauritius
  • Morocco
  • Myanmar
  • Nicaragua
  • Pakistan
  • Panama
  • Senegal
  • Syria
  • Uganda
  • Yemen
  • Zimbabwe

When Enhanced Due Diligence Is Required?

Organizations and people listed below must employ Enhanced Due Diligence Management before doing business with a company:

  • If your company is located in a nation that is on the High-Risk Third Country list, you may be considered a Politically Exposed Person (PEP).
  • Companies operating in high-risk industries, such as the gambling industry.
  • Corporations that are just shells of their original.
  • Terrorist-supporting organizations that have been delisted.
  • Correspondent as well as private banking.

What Is the Difference Between Customer Due Diligence and Enhanced Due Diligence?

Checking the customer's data against databases, or using solutions like a document or biometric check, is a part of Customer Due Diligence. When you create a new account, this is normally necessary. Customers that are considered low risk may merely have to identify themselves, but not have their identification verified, as part of a reduced client due diligence process.

High-risk consumers must undergo an Enhanced Due Diligence as an extra step in the KYC process. Due to their geography, career, or political exposure, a consumer may be considered high risk. It is usual for EDD to be needed when doing business with a PEP, a person from a high-risk or sanctioned nation, or any other case where there is a greater danger of money laundering.

What Objective Parameters Can Be Used for Enhanced Due Diligence?

Considering a Risk-Oriented Approach

It will assist you in spotting and investigating potentially dangerous clients. Measuring the customer's risk level accurately is vital for your AML compliance since they could launder money or execute financial crimes via your organization. An AML program that is not properly implemented might result in fines from authorities.

Sorting Additional Credentials

Collect data about your high-risk customer's AML BSL rules. This advanced diligence process comprises all the information you need to know about your consumer.

Finding Out Where the Money Comes From and its UBO

Companies need to know where their customers' money comes from and how it was earned. Customers' non-financial and financial assets must be linked to their actual assets, and the organizations must verify this. They must. Discrepancies in income, wealth source, and net worth should be spotted and probed.

Following Up on Current Deals

To be on the safe side, look up a customer's previous purchases if they have one. The purpose and substance of the transaction, as well as the people involved, should be scrutinized. Companies must make certain that this step is accurate to the required level.

Negative Control and Negative Media

To get a complete picture of a customer's reputation and ownership, due diligence software company need to study relevant media coverage. If the identity findings are negative, it might imply that the person or company is too dangerous to do business with.

Creating a Research Report

To use a risk-based parameter effectively, companies must be aware of the fundamental factors. Businesses may develop industry-specific risk factors. Corporations can use AML software, due diligence software or risk and compliance check tool to scan their consumers on a regular basis and compile a report of their activity.

Creating a System for Constant Risk Monitoring

Monitoring high-risk consumers on a regular basis requires time. As a result, a risk-based monitoring technique is preferable. A business may utilize Enhanced Due Diligence Management to alert them based on a customer's profile or when they engage in any questionable behavior.

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