AML/CFT rules require companies and financial institutions to include customer due diligence in order to adhere to global norms. Businesses must adhere to the Enhanced Due Diligence approach that enables them to fight financial crimes including money laundering and terrorism financing based on the risk connected with a possible customer.
Customer due diligence is a required procedure that entails confirming the identification of the customer in order to ascertain whether their customers are legal businesses. However, when high-risk companies are involved, this fundamental procedure loses its effectiveness and that is when Enhanced Due Diligence comes into play.
Enhanced due diligence, the most cutting-edge approach to reducing the dangers of financial crime, uses a complicated system to do thorough background checks on consumers. A potential customer’s position on national or international sanctions lists can be confirmed when it is believed that they are a high-risk company. Businesses can rely on strong measures like Enhanced Due Diligence to stop money laundering despite the tightening of KYC/AML regulations from banking authorities.
How to conduct Enhanced Due Diligence for high risk customers
We advise going through the below actions in order to complete Enhanced Due Diligence properly:
Use risk-based AML safeguards
All nations and enterprises are required by the FATF to implement risk-based AML safeguards. Every level of AML compliance, including EDD, must adhere to this. The Enhanced Due Diligence process begins with client verification and risk level assessment, which may suggest more research. FATF advises member nations to develop a more flexible set of policies to target their resources and implement preventative actions according to the risks they face.
Get more information about the customer’s identity
Customers that pose a high risk should provide more information to the business. These details may be discovered via a questionnaire made especially for these customers, as well as from the materials we’ve mentioned below:
In case the client is a business or a company then they can showcase paperwork for registration from the regional registrar of companies, the identity of the beneficiaries and the board, names of their customers and suppliers, official corporate documents from the administration of the firm, etc. If the client is a PEP or Politically Exposed Person then he should provide the title and specifics on the job the PEP holds or had.
Evaluating the source funds
The authenticity of the source of finances and the source of wealth must be confirmed in accordance with Enhanced Due Diligence for every company, individual, and company’s beneficial authority.
If there are any discrepancies in the customer’s earnings, wealth, source of money, or net worth, extra papers to support the source of funds may be needed to properly justify the discrepancies. You will need to analyze assets, inheritance, shares, property, salary, dividends, investments and bonuses in such circumstances. If such documents are requested but not provided, or if they are not provided at all, there may be cause to suspect money laundering.
Monitoring the transactions
It is required to examine every client transaction history that is accessible and to get transaction information like the involved parties of the transaction, the primary purpose of the transaction, the entire transaction duration, background information, etc.
Check the information of the company
Press stories, reports, and other media (such as social networks) may provide insight into your customer’s reputation and aid in creating a complete consumer profile. Reputational/negative media research should be carried out as part of Enhanced Due Diligence and updated often.
Physically visit the office
A high-risk signal might be the absence of an actual address or the inclusion of an address that doesn’t match official papers. All legal organizations, including businesses and banks, have physical addresses that need to be confirmed beforehand.
High-risk consumers need to be continuously monitored, which takes a lot of time and effort. It would be convenient to have a suitable monitoring plan in place for each high-risk client.
A key aspect of continuous monitoring is the frequency of sanctions screening. It should be carried out during transactions, when a client is onboarded, and as part of continuing profile monitoring. Companies must thus stay current with sanctions list revisions in order to routinely update client risk profiles.