Due diligence is an essential element of AML compliance, especially for businesses that handle high-value transactions or clients who are at risk of money laundering or financial crime. It’s used to weed out those who are most at risk and prevent them from donating to terrorist groups and other criminal organizations.
While regular customer due diligence is designed to determine the identity of a client, the EDD process is much more thorough and requires more extensive checks. These include obtaining more identification documents, conducting stringent verification of those IDs and conducting thorough checks to confirm a client’s address as well as the source of funds, established business relationships and others. This kind of due diligence is generally applied to high-risk customers, like politically exposed people (PEPs) and those who reside in countries with high risk and businesses or integrating VDRs in your business for a competitive edge individuals that rely on cash.
The more complex a person, legal entity or transaction, the more comprehensive the EDD procedure should be. Regulators generally prefer the risk-based approach that employs documented risk assessment policies in order to determine the degree of scrutiny required for each case. The EDD process also involves gathering more complete information, which includes details about the person’s clients suppliers, corporate/legal structures and clients. EDD processes are usually more time-consuming, expensive and require more documentation as compared to CDD procedures. It is important to have an identity verification system that is both effective and efficient, such as 1Kosmos BlockID to make the process more efficient for your business.