The TIC Company
‘Keep calm and carry on’ is something we’ve all seen and heard as the slogan has made its way from being a motivational World War II poster in 1939, to appearing on souvenirs, t-shirts and mugs or as a meme around the world today. We can also adopt its sentiment in the world of anti-money laundering as we find the level of our verification checks for certain customers requires a calm, persistent approach in the face of challenging enhanced investigations.
Many of us have heaved a big sigh and had to stiffen our resolve when our customer due diligence investigations show the level of risk involved with a client requires enhanced customer due diligence (EDD), but it doesn’t have to be a painful process.
Yes, it certainly takes a bit more time and effort than your standard CDD but don’t back away from EDD. It can be a critical step in your due diligence process and following the correct steps and procedures can help make your life a lot easier in the long run.
Here we unpick all things EDD so keep calm and read on.
What is enhanced customer due diligence?
Enhanced due diligence is for those high-risk customers that require a greater degree of scrutiny than what is typically carried out during customer due diligence (CDD). This may be because you are dealing with large transactions or a high-net worth customer, or your due diligence activities may have uncovered the need to establish a higher level of identity verification.
Reasons you may consider a client high risk are:
Your customer has a trust or another vehicle for holding personal assets.
Your customer is a non-resident client from a country that has insufficient anti-money laundering and countering financing of terrorism systems or measures in place.
Your customer has a company with nominee shareholders or shares in bearer form.
Your customer is a politically exposed person (PEP).
You consider that the level of risk involved is such that enhanced CDD should apply.
And remember, EDD is not just for new customers. As part of your ongoing customer due diligence programme you should identify any situation which means EDD needs to be conducted. The FATF states applicable situations as follows:
A high-risk customer’s account activity and transaction behaviour shows that their level of ML/TF risk remains high.
A low- or medium-risk customer’s account activity and transaction behaviour shows that their level of ML/TF risk has increased since your previous assessment.
When you consider, based on your risk assessment and programme, that the level of risk involved is such that enhanced CDD should apply to a particular situation.
What is the difference between CDD and EDD?
Both CDD and EDD require the collection of data to verify a customer’s identity and to determine the level of risk they may present. However enhanced customer due diligence has two key components over and above what is usually required with CDD:
The use of increased or more sophisticated measures to obtain and verify your customer’s details, their representatives, other key persons and details of their beneficial ownership structure.
Ensuring you obtain and verify source of wealth and/or source of funds of your customer.
These two components may seem like a lot more work but this extra degree of scrutiny will help you determine the legitimacy of beneficial ownership structures, determine whether funds are legitimately acquired, or whether there could be reason to suspect source of wealth maybe from the proceeds of criminal activity.
And what if you do find reason to suspect money laundering activity? Well, ‘stay calm’ and submit a suspicious activity report (SAR) to the FIU using the online form at GoAML which is the prescribed reporting tool from the AML/CFT Act.
The basics of carrying out enhanced due diligence
CDD has become par for the course, we’ve all spent time gathering information on our customers and checking identities and we’ve become used to the general process. Enhanced customer due diligence is not so different. It makes us dig a little deeper and go a few steps further but it is a critical activity for high-risk clients and to meet requirements of