Enhanced Due Diligence (EDD): A Comprehensive Guide
Enhanced Due Diligence (EDD) is an advanced level of verification applied by financial institutions to manage higher-risk customers and transactions. It is a crucial component of Anti-Money Laundering (AML) frameworks and is implemented when standard KYC is not sufficient to mitigate potential risks.
What is Enhanced Due Diligence?
EDD involves collecting additional information and documentation from customers whose activities pose a higher risk to the financial system. This process includes deeper investigation, monitoring, and ongoing assessments to ensure transparency and security.
When is EDD Required?
- High-risk customers (e.g., politically exposed persons)
- Large or complex transactions
- Customers from high-risk countries
- Unusual account activity
- Offshore businesses or entities with no physical presence
Key Steps in EDD
- Identify and verify customer identity through multiple sources
- Assess the nature and purpose of the relationship
- Obtain detailed information about the source of funds
- Conduct background checks and adverse media screening
- Establish ongoing monitoring mechanisms
Importance of EDD
EDD helps financial institutions detect and prevent illicit activities such as money laundering, terrorist financing, and fraud. It enhances compliance with regulatory standards and promotes trust in the financial system.
Regulatory Compliance
Most jurisdictions, including Bangladesh, require financial entities to implement EDD under AML laws. Regulatory bodies such as Bangladesh Bank, FATF, and international frameworks provide guidelines for executing effective EDD programs.
Conclusion
Enhanced Due Diligence is a proactive measure to strengthen financial security and ensure institutional integrity. Banks and financial entities must treat EDD not just as a compliance obligation but as a protective strategy against financial crime.
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