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Each year, about $2tn in illicit cash flows are circulating through the financial system worldwide, despite the efforts of financial institutions and regulators to prevent the financing of terrorists and money laundering. To combat dirty money enhanced due diligence (EDD) is a method that requires an extensive Know Your Customer (KYC) which is a deep dive into customers as well as transactions that carry higher risk of fraud.

EDD is generally considered to be a higher grade of screening than basic CDD, and may involve more details requests, such as sources of wealth and funds corporate appointments, connections with other individuals or companies. It usually involves more thorough background checks, including media searches, to identify any publically available evidence or reputational evidence of criminal activity or misconduct that could pose a threat to the bank’s operations.

The regulatory bodies have guidelines for when EDD should be triggered, and this is usually contingent on the type of customer or transaction and also whether the person in question is a politically exposed individual (PEP). It is up to each FI whether they would like to add EDD to CDD.

The most important thing is to develop effective policies that make clear to staff what EDD requires and what it doesn’t. This can help to avoid situations that are high-risk and can lead to huge fines for fraud. It is also essential to have a thorough identity verification process that can help you spot alarms such as hidden IP addresses, spoofing technologies and fake identities.