Simplified Due Diligence: An easy way to meet AML requirements?

May 13, 2021
by ArtAML Team

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.

For example:
> 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.”

SDD might apply, for example, if the customer is a ‘public’ company or is a state-backed business (in a jurisdiction that is not high-risk), such as a museum that is a Royal Charter Company. It won’t apply purely for having known someone for a long time. It certainly is not a way to circumvent asking awkward questions.

IF you use SDD, it’s important that you would be able to testify to the individual’s good standing in court, including having the evidence to back up 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.

The ArtAML platform provides differing paths for conducting due diligence, including SDD when applicable:

Due diligence options from aml.art

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