Due to the rapid increase in digital technology, remote business operations are at the stance of cybercrimes. Criminals use various techniques to perform illicit activities such as cyber crimes, financial terrorism, data breaches, and transactional stealing. Many fraudsters use fake IDs and spoofed images to pretend to be authentic and perform illegal activities such as money laundering. As per the report of Statista, the ratio of money laundering has reached from 4.64 to 4.74 in Colombia for the year 2019-2022.
Financial institutions have to suffer heavy losses due to legal actions of being suspected of being involved in various crimes such as money laundering and illegal transactions. Thus Banks and other financial institutions require Know Your Customer(KYC) Compliance to assess potential risks and identify possible complexities. Enhanced Due diligence (EDD) measures are the extension of the KYC process to facilitate organizations with in-depth risk assessment.
Enhanced Due Diligence (EDD)
Companies comply with the KYC process to identify the authenticity of their clients. Various KYc documents that may include ID cards, educational certificates, passports, visa cards, debit/credit cards, and driving licenses are identified to verify the information provided. KYC processes the possible risk associated with a particular entity. Enhanced due diligence is one of the measures of Customer Due Diligence (CDD), which is used to process a client’s profile due to risk association. Clients with high-risk profiles undergo EDD to acknowledge an in-depth understanding of their funds and resources for their authenticity. Financial institutions execute Enhanced Due Diligence (EDD) to avoid Money Laundering (ML) and protect them from legal actions. Therefore, EDD is the extension of the KYC process that organizations need in case of high-risk profiled customers to avoid possible future risks.
Strength Of Enhanced Due Diligence Check
EDD process facilitates organizations to gather comprehensive information regarding clients’ identities and enables firms to safeguard themselves from money laundering and corruption charges. It plays a crucial role in dealing with high-risk customers such as users who are politically exposed entities or individuals in highly sanctioned territories. EDD is highly employed within organizations particularly in financial sectors as per the following core benefits;
- Customer Satisfaction
The Enhanced Due Diligence process offers organizations in-depth information regarding their client’s profiles. It enables firms to repurpose bespoke solutions as per their requirements. It makes organizations able to build trustworthy relationships with their clients and have great business success.
- Enhanced Reputation
With successful EDD measures, organizations protect themselves against every kind of future risk such as money laundering and financial terrorism. It protects companies from being accounted for regarding various crimes and from legal charges. Thus it enhances the brand’s reputation and allows users to trust that particular firm. Additionally, financial institutions protect them from giving access to corrupt politicians, criminals, and financial terrorists. It facilitates firms to have a defense against fraud loss and compliance penalties.
- Detailed Documentation
KYC Enhanced Due Diligence is performed for high-level risk profiles to avoid related complexities. It enables organizations to have in-depth analysis of clients’ documents. AI and ML algorithms used in EDD procedures allow automated quick solutions to find every possible risk association regarding money laundering and financial terrorism.
- Regulatory Requirement
Companies using Enhanced Due Diligence (EDD) mechanisms protect themselves against every kind of legal action and heavy fines for being suspected. EDD offers Know Your Customer (KYC) and Anti Money Laundering (AML) regulatory compliance and makes the organization secure.
High-Risked Customers Who Need EDD
Companies require Customer Due Diligence (CDD) to acknowledge their clients in depth. Mini two kinds of CDD are performed. CDD is performed to assess clients regarding risk profiles. After successful assessment, further EDD KYC process is performed as per the risk association.
- Simple Due Diligence (SDD)
It is performed for clients with low or average risk profiles.
- Enhanced Due Diligence (EDD)
EDD is performed whenever a client possesses a high-risk profile. The following are the clients who undergo the EDD process due to high-risk profiles.
- Politically Exposed Persons (PEPs)
- Customers With Complex Ownership Structures
- Non-residential Customers
- Customers With Dubious Reputations
- Customers With Links To High-risk Countries
- Customers Associated With Industries Deemed As High-risk
- Customers With Unusual Account Activity
Final Words
Companies need an Enhanced Due Diligence process to overcome crimes attached to clients who possess high-risk profiles such as money laundering and illegal transactions. EDD compliance enables organizations to overcome heavy penalties and financial losses as it provides KYC and AML compliance. EDD is the only solution to have a quick insight into clients’ risk profiles in-depth to avoid money laundering. This process allows organizations to build trustworthy relationships with their clients and have high business success with customer satisfaction.