What is Enhanced Due Diligence? Definition & Procedures
Banks gather basic information about their clients before developing a business relationship. Enhanced due diligence takes this concept further. Banks use this process to dig deep into clients and transactions that hold enhanced fraud risks.
Researchers say trillions of tainted dollars move through major banks. Criminals use these institutions to hide their work and legitimise their finds. Enhanced due diligence reports make money laundering harder.
What is enhanced due diligence?
Know your customer (KYC) policies allow banks to verify customer identity before beginning a business relationship. Enhanced due diligence policies dig deeper to prevent nefarious activity happening on the bank's watch.
Enhanced due diligence policies are:
- Intensive. Companies must create procedures that are rigorous. You can't create a simple checklist and consider your work done. You must prove that you're doing all you can to root out crime.
- Detailed. Enhanced due diligence reports must outline what you do, when you do it, and why you take the steps you're taking.
- Considered. Your decisions must be reasonable, and you must come to them after doing appropriate research.
Some of your clients don't need to move through enhanced due diligence. But those that share these three enhanced due diligence factors do:
- Identity: Your clients are foreigners, or they work in politics.
- Geography: Your customers come from countries without deep financial regulations, or their home countries are known for corruption or sanctions.
- Business: The clients operate a cash-only business.