How much do you know about the enhanced customer due diligence (ECDD) program? Read on to learn more about this important risk-based approach and how to identify high-risk customers.
A recent investigation discovered billions of dollars of money laundering through pubs and clubs in New South Wales. Investigators also found that many club boards, hoteliers, and staff seemed unaware of their AML/CTF obligations. Compliance with AML/CTF regulations is essential not only for financial institutions but also for pubs and clubs.
Enhanced Due Diligence is an integral part of your AML/CTF program. It protects your business and is integral to your risk-based monitoring strategy. It protects the global financial system against illegal use and financial crimes by identifying high-risk business relationships at your venue.
Learn more about what enhanced due diligence procedures ECDD entails and how you can comply.
What Is Enhanced Due Diligence EDD?
Pubs and clubs are among the many types of businesses that must have an Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) program. Your AML/CTF program helps detect, disrupt, and prevent money laundering and terrorism financing by identifying suspicious transactions.
Part A of your AML/CTF program describes your Enhanced Customer Due Diligence (ECDD) process and procedures. ECDD goes beyond Customer Due Diligence (CDD) and customer risk assessment.
CDD primarily happens during customer onboarding. It verifies the customer’s identity using information such as:
- Date of birth
- Physical Address
- Passport Details
ECDD goes beyond this primary verification with an enhanced due diligence checklist. It’s necessary when your business faces high-risk exposures such as money laundering or terrorist financing.
Your Enhanced Customer Due Diligence program should involve additional customer identity checks, ongoing monitoring of transactions and a procedure to identify high-risk clients. You’ll need to collect more identification documents and information to further verify the ultimate beneficial ownership (customer’s) identity and the legitimacy of their ongoing transactions and financial assets.
When to Apply ECDD
Determining when to apply ECDD depends on your business and your customers. You should apply your ECDD program when any of these high-risk situations occur:
- Your risk-based systems and controls identify a higher risk of money laundering or terrorism financing
- A customer is a foreign politically exposed person (PEP)
- A customer’s activity or behaviour leads you to make a suspicious matter report
- A transaction involves a person that has a presence in a prescribed foreign country
The due diligence measures you take for a particular customer can change over time depending on many risk factors. If a customer’s profile shows increased risk, you may need ECDD.
Types of ECDD Measures
You can use a variety of ECDD measures to verify the customer’s identity, the legitimacy of a transaction, and its intended nature. These measures involve deeper analysis of the suspicious activity, the parties involved, the customer details, and information on hand, and getting further investigation when necessary.
Verify Customer Information
You already have specific data about the customer from your initial KYC process. ECDD can involve verifying or re-verifying this information. For example, you can re-verify the customer’s full name and date of birth to show that they are who they say they are.
This verification should follow your usual customer identification processes. You should ensure that you’re using reliable and independent documentation.
Deeper Analysis of Existing Information
You may need a more detailed analysis of the information you have about a customer in order to handle high-risk customers. A deeper analysis may reveal more about the source of the customer’s funds and identify a greater risk or higher risk situations and even criminal activity. This can show whether a customer is a high-risk, politically exposed person or a regular player.
Get More Information
If your existing information about a customer is insufficient, you can request additional information. You can get this information from the customer or third-party sources such as dfat.gov.au.
Additional information can help you identify the source of a customer’s funds, if there may be a financial crime or particular regular compliance you need to follow. It can help clarify the nature of the customer’s ongoing business and risk profiles.
More Detailed Transaction Monitoring
You may need enhanced monitoring on the customer’s transactions. You can watch for:
- Type of transactions
- Purpose of transactions
- Frequency of transactions
This monitoring can help you determine a customer’s level of risk.
Improving Your ECDD Programme
ECDD is a critical part of your AML/CTF program. It helps prevent the use of funds for illegal purposes. It is not just about regulatory compliance, it protects your business.
An effective ECDD program helps you comply with regulations without losing customers unnecessarily.
RCA Group can conduct a comprehensive analysis of your AML/CTF program. Our analysis helps ensure that your program adequately addresses risk and works correctly. We’ll identify areas of weakness to help you get back into compliance.
Contact us today to schedule a consultation.