How to Conduct Enhanced Due Diligence for High-Risk Clients

Introduction

Enhanced due diligence (EDD) is a heightened level of client scrutiny required when a business relationship or transaction presents elevated risk. Under FINTRAC’s guidance, reporting entities must apply EDD when they identify risk factors that go beyond what standard KYC procedures are designed to address — such as clients who are politically exposed persons, transactions involving high-risk jurisdictions, or complex corporate ownership structures.

When Enhanced Due Diligence Is Required

1. Politically exposed persons (PEPs): Clients who hold or have held prominent public positions, their family members, and close associates require EDD due to their elevated corruption risk.

2. High-risk jurisdictions: Transactions involving countries identified by the Financial Action Task Force (FATF) as having strategic AML deficiencies trigger EDD obligations.

3. Complex ownership structures: Corporate clients with layered ownership, nominee shareholders, or trust arrangements require deeper investigation into beneficial ownership.

4. Unusual transaction patterns: Transactions that do not fit the client’s expected profile — in size, frequency, or destination — warrant closer examination.

5. Adverse information: Any negative media reports, criminal associations, or regulatory actions linked to a client should trigger EDD.

Step-by-Step EDD Process

1. Complete standard KYC first: EDD builds on standard KYC. Ensure that the client’s identity has been verified using acceptable methods and that basic client information has been collected and recorded.

2. Determine the source of funds: Ask the client to explain and document the source of the funds involved in the transaction or business relationship. Acceptable documentation may include pay stubs, tax returns, bank statements, or sale agreements.

3. Identify beneficial owners: For corporate clients, identify all individuals who own or control 25% or more of the entity. Obtain their names, dates of birth, and addresses, and verify their identities.

4. Conduct adverse media screening: Search reputable news sources and databases for any negative information associated with the client, their beneficial owners, or their business activities.

5. Assess and document the risk: Record your risk assessment in writing, including the risk factors identified, the additional steps taken, and your conclusion about whether to proceed with the business relationship.

6. Implement ongoing monitoring: EDD clients require more frequent monitoring than standard-risk clients. Establish a review schedule and re-screen against sanctions, PEP, and adverse media sources on a regular basis.

How Athenty Can Help

Athenty, a verification intelligence company, provides Smart IDV and KYC services that streamline enhanced due diligence for high-risk clients.

1. PEP and sanctions screening: Smart KYC automatically screens clients against global PEP databases and sanctions lists at onboarding and on an ongoing basis.

2. Beneficial ownership collection: The platform guides corporate clients through a structured beneficial ownership disclosure process, collecting and verifying the identity of each beneficial owner.

3. Adverse media monitoring: Automated adverse media checks flag relevant negative coverage associated with the client or their beneficial owners.

4. Documented risk assessment: All screening results, verification outcomes, and risk indicators are compiled into a single, auditable report that demonstrates the EDD steps taken.

Conclusion

Enhanced due diligence is a critical compliance tool for managing the risks that standard KYC procedures are not designed to address. By following a structured EDD process and documenting every step, regulated businesses can demonstrate to regulators that they take their highest-risk relationships seriously. Athenty’s Smart KYC platform provides the tools to conduct thorough EDD efficiently and consistently.