Where does the money come from? Find out how Enhanced Due Diligence is helping to mitigate the threat of financial crime.
Just as global trade is increasing ties between companies across the world, so the network of actors involved in crimes such as money laundering and fraud is growing.
This poses a very real threat to companies, who need to avoid becoming entangled or associated with such illicit activities. Some companies may need to know the practical risks in working with a potential business partner or supplier.
Others need to know about red flags on new clients or investors that could lead to legal or reputational problems down the road.
Source of wealth
Enhanced Due Diligence (EDD) products and services allow companies to obtain the information they need in order to conduct business and comply with legislation and regulations set by governments and other international bodies on entities or individuals.
As part of such compliance measures, it is also important for companies to determine the source of wealth of their partners and clients.
Beyond checking for information and background on a company or individual, knowing the origin of their funds is crucial, particularly for compliance with legislation such as Know Your Customer and anti-money laundering.
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Complex criminal networks
Given the complex network of schemes used by criminals to disguise the source of income, companies must be aware of indications that funds may have been obtained through illicit means.
Furthermore, failure to corroborate a client’s source of funds could mean becoming an accessory to money laundering or other financial crime and being fined or face criminal charges.
Determining the facts
Standard due diligence may reveal red flags regarding a company or individual to indicate that additional scrutiny may be needed into the source of wealth, even if this is not the client’s primary focus of EDD research.
For instance, searches may show that a company is owned by a politically exposed person (PEP).
Therefore, it is recommended to look into such an individual’s source of wealth, by searching through public records and other available sources.
This will identify business affiliations and assets and determine whether they are consistent with his or her profile or disclosed wealth.
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Legitimate source of wealth?
In recent years, the importance of compliance and the need for EDD to fulfill both legal as well as internal regulations has increased, due in large part to global efforts to combat financial and organized crime.
When conducting due diligence, it is not sufficient to simply confirm the existence of a company or the profile of an individual.
Companies need to be aware of risks tied to the source of the company’s or individual’s wealth.
Although identifying the source of wealth is not always the explicit motivation behind conducting due diligence, it is an underlying reason for why EDD is necessary.
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