Enhanced Due Diligence: Checklist and Guide
Starting new ventures and working with new organizations and people are exciting, but not doing your diligence can quickly make that deal less exciting. Not to mention, exposing your new entity and business to regulatory fines without doing the proper “homework.”
KYC — Step 1
Know-Your-Customer (KYC) refers to the steps taken by a business to:
- Establish the identify of the customer, using best practice and industry standards.
- Understand the nature of the customer’s activities (primary goal is to satisfy that the source of the customer’s funds is legitimate).
- Assess money laundering risks associated with that customer for purposes of monitoring the customer’s activities.
EDD — Step 2
Enhanced Due Diligence (“EDD”) is additional information collected for higher-risk customers to provide a deeper understanding of customer activity to mitigate associated risks. Customer risk assessments can be used to determine which level of due diligence to apply. This can be business rules for watchlists that the customer or business appears on or size of the transaction.
Companies and financial institutions were first compelled to conduct EDD by the USA PATRIOT Act in 2001, a provision which is still in effect today. The Patriot Act also requires that offshore banking institutions, private banking organizations and correspondent accounts abide by EDD regulations and laws.
Many systems include high risk countries flagging and TOR browser detection because this is associated with a higher risk of fraud, but there are other “red flags” to be on the lookout for:
- Location of the business
- Occupation or nature of business
- Purpose of the business transactions
- Expected pattern of activity in terms of transaction types, dollar volume, and frequency
- Expected origination of payments and method of payment
- Articles of incorporation, partnership agreements and business certificates
- Identification of beneficial owners of an account or customer
- Details of other personal and business relationships the customer maintains
- Approximate salary or annual sales
- AML policies and procedures in place
- Third-party documentation
- Local market reputation through review of media sources
Super Size Your Diligence, Ongoing Monitoring Does Come With That
Besides the Patriot Act requirements for EDD, the UK Gambling Commission has set new rules that took affect on May 7th.
These rules states that operators are now required to verify the address of new players (as well as their name and date of birth) prior to gambling. They are also obligated to retroactively verify existing players. This is a particularly hefty task, with upwards of 1.6 billion people estimated to gamble at some point during any given year.
The better identity verification providers will make sure that businesses do not have to worry about the twenty checkboxes above, let alone how to do ongoing monitoring. Aver offers one-click to turn on these features, so businesses can continue to stay compliant, while moving customers into their platforms faster than ever.
