If you’re subject to anti-money laundering (AML) legislation, you’re required to take steps that will raise red flags to signal the possibility of your business being the target of money laundering activities.
The level of compliance checks undertaken will depend on the level of risk, which can be any of three options:
Simplified Due Diligence (SDD)
Customer Due Diligence (CDD)*
Enhanced Due Diligence (EDD)
*‘Customer Due Diligence’ is also referred to as ‘Standard Due Diligence’. For the purposes of this blog post and to avoid the same acronym having two meanings, we’re using ‘CDD’ for this level of due diligence.
Whereas CDD is most commonly undertaken, some findings might trigger the need to do EDD. In such cases, you conduct CDD and then EDD to address red flags that have been raised.
> It turns out that the buyer is a Politically Exposed Person (PEP);
> Their primary residence in a ‘High Risk Country’; or
> They’re noticeably reluctant to provide information needed to conduct your AML / compliance checks, such as proof of address.
And yet from time to time, you might decide to conduct Simplified Due Diligence.
However, this decision is not to be taken lightly. As stated in the ArtAML platform:
“Simplified due diligence does not require identity document verification or screening, and should only be used in circumstances where you can show that the risk of money laundering and terrorist financing is very low.”
Simplified Due Diligence is not a way to circumvent asking awkward questions. It’s applicable in situations where you’re so certain of a person’s good standing that you would be glad to testify to this in court, which includes being able to demonstrate the basis of your decision.
In simple terms, the level of due diligence conducted is instructed by taking a risk-based approach. This can be guided by your AML Policy that outlines how you mitigate the risk of your business being the target of anti-money laundering / terrorist-financing activities, in addition to making assessments on a case-by-case basis.