Under the guideline set by the Financial Action Task Force (FATF), enhanced due diligence is regulatory compliance, which is applied to one step ahead screening of high-risk entities. A simple due diligence process offers a random and partial screen, on the other hand, enhanced due diligence offers a thorough process to evaluate individuals and entities.
If entities like Paul Manafort and Rick Gates can take advantage of financial sectors to launder money obtained from illegitimate resources, it is necessary to identify weaknesses in the AML compliance system. It is necessary for organizations to utilize significant measures for financial security. Enhanced due diligence service ensures the transparency of high-risk entities and works to mitigate money laundering attacks.
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What is Enhanced Due Diligence? An Overview
Enhanced due diligence is a screening and investigation process that is applicable to evaluate high-risk entities. Companies usually employ customer due diligence processes to evaluate potential users before onboarding. However, for users with high-risk profiles, it is necessary to utilize a thorough screening process such as EDD. It is part of biometric AML. EDD process ensures cross-checking of user information across up to dated data of sanctions and watchlists.
Enhanced Due Diligence (EDD) is a set of various measures that help businesses to check and monitor high-risk individuals and entities to secure the landscape from money laundering activities. Due to the growing ratio of illicit cash flow, regulatory bodies keep on trying to devise legislation and enforcement actions to maintain global financial stability.
Role of EDD in AML Screening
EDD plays a vital role in the anti-money laundering screening process as it enables businesses, financial sectors, and other organizations to conduct a thorough investigation of users who have high-risk profiles. These entities can pose serious threats to business operations as they can be the reason for legal and financial complications. High-risk entities include the following entities:
- Politically Exposed Persons (PEPs)
- Non Profit Organizations (NPOs)n and Charities
- Money Changers and Money Service Operations (MSOs).
- Firms with Complex ownership Structures
- Entities with Industrial Background
Enhanced Due diligence is usually required for the transparency of entities and to identify their past behaviors by checking their information across various public and private records. Therefore, EDD is closely related to the AML screening process and offers real-time investigation of individuals and businesses. Businesses that work with B2B or B2C models require enhanced due diligence measures for screening.
Necessary Components of an Enhanced Due Diligence (EDD) Checklist
Enhanced due diligence checklist consists of various steps and has various requirements to thoroughly screen entities for investigation and verification. All the steps involve pre-trained artificial intelligence models to perform the action quickly and provide highly accurate results in a very short time. EDD checklist includes the following steps to complete the process.
Identification
Automated checks of artificial intelligence within the EDD process determine the authenticity of entities by checking all the necessary information and submitted documents. Different documents are collected in electronic forms for remote service to collect required data.
Verification
After data collection, it undergoes a verification process where information is cross-matched with different records, such as databases containing all the details. It is not a time-consuming or lengthy process but requires only one click, as EDD is now automated with the help of AI.
Adverse Media Screening
In the enhanced due diligence process, pre-trained artificial intelligence algorithms screen media files containing negative information about entities. It helps to verify if the client or user has been part of any ill reputational activity.
Compliance Level Screening
The EDD process involves a step for checking user and organizational compliance status for certain regulations It ensures the legal security of business from future issues and helps in well-informed decisions regarding onboarding.
Financial Health Verification
In the enhanced due diligence screening process, companies verify different financial papers as well. It involves tax details, payback details, and debt information. Although it is not a major part of the EDD process, sometimes companies perform it to recheck the information of high-risk entities.
Ongoing Monitoring
Companies can have ongoing monitoring services with the help of enhanced due diligence processes. Automated checks in the process male the organization well-informed if there would be any change identified in the client or user’s behavior.
Final Words
Enhanced due diligence checklist involves various kinds of verifications and screening methods. It enables organizations to screen high-risk entities for thorough verification and investigation. The EDD process involves various steps and ensures transparency of entities for well-informed decisions regarding collaborations for anti-money laundering. EDD plays a vital role in the AML screening process and helps organizations to reduce future complications.
