In a constantly evolving compliance and regulatory environment, it’s crucial that organisations understand exactly who they are doing business with. Enhanced due diligence is key to this. Poor or insubstantial due diligence can lead to fines, damaged reputation and significant harm to operations as a result of criminal activities.
The Financial Conduct Authority (FCA) recently emphasised this by directly addressing CEOs of Annex 1 firms, highlighting common gaps in preventing financial crimes like money laundering and terrorist financing. One of the biggest issues the FCA called out was a common “failure to risk assess [the firm’s] own or their customers’ activities properly.”
Ultimately, while due diligence processes provide a baseline for checking a customer’s identity, this isn’t always sufficient. Enhanced due diligence (EDD) goes further by gathering additional context, aiding institutions in better understanding their affiliates and their activities.
To conduct thorough EDD investigations, organisations need to ensure they have the right processes and tools in place. Today, we’re going to take a closer look at EDD investigations and how open source intelligence (OSINT) can help organisations achieve successful investigation outcomes.
Suggested reading: If you want to learn more about conducting due diligence investigations with OSINT, check out our free eBook — The OSINT Handbook
Enhanced due diligence goes beyond the know your customer (KYC) checks required for customer due diligence (CDD). CDD is a generic, often automated approach to confirming customers’ identities and risk profile. EDD is a more specific, structured approach to gathering detailed background information on a client.
EDD is designed primarily for higher-risk situations, often those that involve high-net-worth clients. Whilst specifications vary across jurisdictions and sectors, EDD requires more comprehensive background checks.
By analysing a customer’s background, network, business relationships and other relevant factors, organisations can identify and understand risk, protecting themselves and meeting regulatory obligations. The depth of these checks will vary based an organisation’s own risk appetite and the presence of a number of risk factors. These can include:
Additionally, while the term “EDD” is often associated with financial institutions, it is also used outside the financial sector. The core applications of EDD outside of anti-money laundering (AML) are:
Today, many organisations are still performing slow, manual checks of structured data, including PEPs and sanctions lists. However, this approach can lack nuance. Instead, organisations need to include all the relevant and up-to-date information possible. That means checking sources beyond PEP and sanctions lists, utilising the surface web, adverse news, publicly available social media and the dark web.
Mass digitisation of online payments and transactions has created new challenges in the fight against money laundering risks and financial crime. Additionally, as the financial services industry has increased in size and complexity, so have the regulations that govern it.
Significant regulatory and guideline changes in the last few years that have made EDD even more essential, including:
Despite these developments, many organisations still see EDD as a box-ticking exercise. To fight financial crime more effectively, EDD needs to be viewed as part of a broader risk-based approach.
Regulatory requirements and the increasing threat of financial crime have led new investigation techniques to become part of EDD processes. Open source intelligence is one of the most prominent of these.
OSINT makes use of publicly available data to provide a rich account of an EDD subject, their business interests and connections. This data can be obtained from a range of sources across the surface web, dark web and deep web:
The value of open source data has not gone unnoticed by regulatory authorities. The FCA’s Financial Crime Guide states that effective EDD includes using “open source internet checks to supplement commercially available databases.” Meanwhile the European Banking Authority suggests enhanced due diligence (EDD) measures include carrying out “open source or adverse media searches” on an ongoing basis.
By deploying OSINT, businesses can gain the ability to conduct consistently effective and successful investigations while simultaneously fulfilling their various ESG and regulatory commitments.
The benefits of harnessing OSINT within the specific context of EDD are numerous, and include:
OSINT doesn’t just complement existing EDD strategies — it forms the basis of a more robust, effective EDD strategy that overlaps with different departments within an organisation’s AFC functions.
To ensure the fastest and most accurate OSINT investigations possible, EDD teams need OSINT tools that allow them to investigate this dynamic, fast-moving data effectively.
Given the implications for failure to meet regulatory standards, investing in solutions that improve enhanced due diligence procedures is essential. At Blackdot, we developed Videris, a powerful system for extracting intelligence from open source data, to help organisations rise to the challenge of implementing effective EDD.
Videris places open source intelligence at the fingertips of EDD teams, effectively multiplying their resources and providing them with:
Videris enhances the EDD process, delivering reliable, secure and consistent results that elevate EDD processes. Book a demo to explore how Videris can enhance your business’s EDD processes.