Enhanced due diligence (EDD) services help financial institutions evaluate the potential risks of doing business with a particular customer or business relationship. It is a more detailed and comprehensive assessment of a customer’s identity, financial background, financial activities and risk factors.  

What triggers enhanced due diligence?

Enhanced due diligence services focus on high-risk customers or transactions. These processes identify high-risk customers, gather and analyse information and implement risk mitigation measures to prevent financial crimes like money laundering and terrorist financing.  

Depending on regulatory guidelines and risk assessment results, EDD usually applies to the following:  

• Politically Exposed Persons (PEPs)  

• Customers located in high-risk or sanctioned countries 

• Customers with connections with the higher-risk business sectors 

• Customers with high-value or unusual transactions 

• Customers with suspicious details or provide false information  

• Entities with complex ownership structures  

• Charitable organisations 

These are some examples of higher-risk situations that would necessitate enhanced due diligence services. However, this does not imply that all high-risk customers are necessarily engaged in illegal activities; instead, it suggests that they have more risk factors that require more scrutiny.  

What are the common EDD measures?

Businesses use enhanced due diligence measures to evaluate and monitor high-risk customers. Some of these measures include:  

• Gathering customer’s information, including their financial profile, source of funds or wealth 

• Identifying the ultimate beneficial owners 

• Understanding the nature of the business relationship 

• Monitoring customer transactions to identify suspicious activity 

• Developing a customer’s risk profile based on their location, type of business and transaction patterns  

An example of EDD

Businesses apply enhanced due diligence services to high-risk customers, such as Politically Exposed Persons (PEPs). According to FATF guidelines, PEPs are classified as high-risk customers due to their susceptibility to money laundering purposes. As a result, to identify a PEP, a company should consider its location, type (e.g., congress member, politician, chief of staff), current position, tenure and sources of funds/wealth.  

What is the EDD process

Below, we will break down the steps on how to conduct enhanced due diligence:  

Step 1: Identify high-risk customers and transactions  

Step 2: Obtain additional customer information 

Step 3: Analyse the source of funds and wealth and beneficial ownership  

Step 4: Implement enhanced transaction monitoring systems  

Step 5: Check for adverse media and any negative customer information 

Step 6: Keep records of all documents related to the EDD process  

Conclusion

In addition to ensuring regulatory compliance and combatting money laundering, businesses can significantly benefit from adopting enhanced due diligence services. By implementing EDD, companies can showcase their commitment to maintaining a good reputation and developing positive business relationships. Furthermore, a comprehensive customer verification process provides significant insights into their needs, which can ultimately enhance the overall customer experience.  

Why partner with us?

At Bolder Group, compliance and KYC services are critical components of our comprehensive due diligence workflow process for various types of clients. Our team of experts handles anti-money laundering back office and counter-terrorist financing work, including enhanced due diligence, AML risk analysis, verification of customer identification and transactions and compliance reporting.  

Learn about our Governance solutions or contact our Bolder representatives to ensure full compliance with local and international legislation.  

Bolder Group does not provide financial, tax or legal advice and the information contained herein is meant for general information purposes only. We strongly recommend that before acting on any of the information contained herein, readers should consult with their professional advisers. The Bolder Group accepts no liability for any errors or omissions in the information, or the consequences resulting from any action taken by a reader based on the information provided herein.

Bolder Group refers to the global network of independent subsidiaries of Bolder Group Holding BV. Bolder Group Holding BV provides no client services. Such services are provided solely by the independent companies within the Bolder Group which are each legally distinct and separate entities and have no authority (actual, apparent, implied or otherwise) to obligate or bind Bolder Group Holding BV in any manner whatsoever. The operations of the Bolder Group are conducted independently and have no affiliation with third party financial, tax or legal advisory firms or corporations.