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To identify if your customer warrants EDD, you should consider whether or not they meet any or all of the below criteria.:
Customer Risk Factors:
- The customer is a PEP
- The customer is an SIP
- Any person or entity with a sanction
- A large amount of adverse media
- High net-worth
- Customers associated with unusual, complex or purposeless transactions
Geographical Risk Factors:
- Countries which have sanctions or embargoes levelled against them
- High-risk third countries
- A country on the FATF list of Other Monitored Jurisdictions (greylist)
- A country on the FATF list of Call for Action Jurisdictions (blacklist)
- Any countries which have proscribed terrorist organisations within them
The FATF requires that all countries and businesses operate using a risk-based approach to anti-money laundering precautions. This applies to every aspect of AML compliance, including Enhanced Due Diligence.
In the introduction to the 40 Recommendations published by the FATF in 2004, it states that a risk-based approach ‘‘allows countries, within the framework of the FATF requirements, to adopt a more flexible set of measures in order to target their resources more effectively and apply preventive measures that are commensurate to the nature of risks”.
This is why Enhanced Due Diligence is only required in application to customers who could be considered high-risk, or high net-worth. After KYC checks have taken place, you can identify whether or not your customer warrants further investigation, and apply a risk-based approach to how you proceed.
There are no official guidelines regarding what EDD should actually entail; it’s only required that the further checks are proportionate to the level of risk that your customer poses. Here’s a run-through of what your EDD might include:
· A thorough understanding of the risk your customer poses.
· Obtaining further information from a wider selection of sources.
· Regularly scheduled background checks to inform your risk assessment.
· Understanding the source of your customer’s funds, to ensure they are not the proceeds of financial crime.
· Organising your data in a way that is AML compliant, and accessible in case of auditing.
Once you’ve identified that a customer is a risk to your company, failing to carry out Enhanced Due Diligence can make your business more vulnerable to financial crimes like money laundering.
Simply put, you risk the financial integrity and reputation of your company by avoiding EDD. On top of this, if your business is audited to check that it’s AML compliant, and you haven’t subjected your high-risk customers to Enhanced Due Diligence, you could face serious penalties.
After we’ve performed KYC checks on your behalf, we will carry out an extensive selection of AML checks using the aggregate SmartSearch platform. This includes screening for PEPs, SIPs, sanctions and adverse media on the Dow Jones WatchList – an unparalleled resource which is updated each day for maximum accuracy.
If we do find a match for your customer, we’ll provide you with a detailed account of the risk they pose to your business, so that you can make an informed decision and begin the Enhanced Due Diligence process. We can also assist you with ongoing monitoring – an integral part of EDD – as our daily monitoring service will alert you to any change in your customer’s status within our database.