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Enhanced due diligence is a crucial element of AML compliance for companies that deal with high-value transactions or customers who are at risk of money laundering and other financial crime. It’s used to filter out the most prone customers and prevent them from donating to terrorist groups and other criminal organizations.
While the regular process of customer due diligence is designed to verify a customer’s identity, the EDD procedure is more comprehensive and requires a greater variety of checks. This involves obtaining more identification documents and performing thorough checks on a client’s location and the source of their funds. This type of due diligence is typically employed for high-risk customers like politically exposed people (PEPs) and those who are located in high-risk areas as well as businesses or individuals who are cash-intensive.
The more complicated the person, legal entity or transaction, the more thorough the EDD procedure should be. Regulators usually prefer the risk-based approach that employs documented risk assessment policies in order to determine the level of scrutiny needed for each situation. The EDD process involves gathering more comprehensive data that include information on the person’s clients and suppliers legal structures, corporate/legal entities, and legal structures. EDD procedures are more expensive and time-consuming. They also require more detailed documentation than CDD procedures. It is essential to have an identity verification system that is both effective and efficient like 1Kosmos’ BlockID, to make the process easier for your business.