Due Diligence

What is Enhanced Due Diligence?

Monday, July 13, 2020

In simple terms, Enhanced Due Diligence it is a more thorough form of Due Diligence. This is an additional level of checks as set out in the 5th anti-money laundering directive to determine additional parameters of risk when dealing with clients transacting above the threshold.

Expressed another way, Enhanced Due Diligence could be said to refer to an increased risk-based approach we are advised to adopt when preparing to transact with a person or entity that poses as an increased risk to our business.

Enhanced Due Diligence lets us mitigate against these risks by equipping us with the knowledge to firstly identify which transactions constitute increased risk.

For most of us, the so called ‘risky’ transactions we are more likely to encounter on a frequent basis are transactions with clients that are not present.

Consider any non face-to-face transaction: online, deals done over the phone, mail order, email or through instant messaging channels like Instagram or WhatsApp.

The anonymity and lack of transparency implicit in such transactions is the source of the risk and while settlement by Bank Transfer may reduce your immediate financial risk, it does not reduce the risk of your laundering money.

In any case, the thoroughness of our information gathering will provide us with a clearer picture and enable us to assess more accurately and reliably the possible risks.

Ultimately, with any Due Diligence process, our primary goal is transparency, to know who we’re dealing with and we may wish to do so using some of the methods explored in the article: How do I correctly identify my client?

As a general rule, the transactions that present an increased risk to our businesses include:

1. Any non face-to-face transaction.

2. Transactions we may conduct with Politically Exposed Persons (PEPS). Learn more about Politically Exposed Persons here

3. Clients purchasing from a high risk country, or presenting a payment source with ties or connections to a high risk country.

4.Clients that can be connected to businesses or corporate structures within sectors and industries that are vulnerable to money laundering e.g. Finance, Banking or Real-Estate