7.1.1. Obligation to conduct Enhanced Due Diligence

A Relevant Person must conduct EDD where money laundering risks are higher.

Where a Relevant Person is required to conduct EDD under AML 6.1.1 it must, to the extent applicable to the customer:

1. (a) obtain and verify additional:
2. (i) identification information on the customer and any beneficial owner;
3. (ii)information on the intended nature of the business relationship; and
4. (iii)information on the reasons for a transaction;
5. (b) update more regularly the CDD information which it holds on the customer and any beneficial owners;
6. (c) verify information on:
7. (i) the customer's sources of funds;
8. (ii)the customer's sources of wealth;
9. (d) increase the degree and nature of monitoring of the business relationship, to determine whether the customer's transactions or activities appear unusual or suspicious;
10. (e) obtain the approval of senior management to commence a business relationship with a customer; and
11. (f) where applicable, require that any first payment made by a customer to open an account with a Relevant Person must be carried out through a bank account in the customer's name with:
12. (i) a bank;
13. (ii)a regulated Financial Institution whose entire operations are subject to regulation and supervision, including AML regulation and supervision, in a jurisdiction with AML regulations which are equivalent to the standards set out in the FATF Recommendations; or
14. (iii)a Subsidiary of a regulated Financial Institution referred to in (ii), if the law that applies to the parent ensures that the Subsidiary also observes the same AML standards as its parent.

Guidance on conducting Enhanced Due Diligence

1. (a) EDD measures are only mandatory to the extent that they are applicable to the relevant customer or the circumstances of the business relationship and to the extent that the risks would reasonably require it. Therefore, the extent of additional measures to conduct is a matter for the Relevant Person to determine on a case by case basis.
2. (b) For high risk customers, a Relevant Person should, in order to mitigate the perceived and actual risks, exercise a greater degree of diligence throughout the customer relationship and should endeavour to understand the nature of the customer's business and consider whether it is consistent and reasonable.
3. (c) A Relevant Person should be satisfied that a customer's use of complex legal structures and/or the use of trust and private investment vehicles, has a genuine and legitimate purpose.
4. (d) For EDD, where there is a beneficial owner, verification of the customer's source of funds and wealth may require enquiring into the beneficial owner's source of funds and wealth because the source of the funds would normally be the beneficial owner and not the customer.
5. (e) Verification of sources of funds might include obtaining independent corroborating evidence such as proof of dividend payments connected to a shareholding, bank statements, salary/bonus certificates, loan documentation and proof of a transaction which gave rise to the payment into the account.
6. (f) A customer should be able to demonstrate and document how the relevant funds are connected to a particular event which gave rise to the payment into the account or to the source of the funds for a transaction.
7. (g) Verification of sources of wealth might include obtaining independent corroborating evidence such as share certificates, publicly-available registers of ownership, bank or brokerage account statements, probate documents, audited accounts and financial statements, news items from a reputable source and other similar evidence. For example:
8. (i) for a legal person, this might be achieved by obtaining its financial or annual reports published on its website or news articles and press releases that reflect its financial situation or the profitability of its business; and
9. (ii) for a natural person, this might include documentary evidence which corroborates answers given to questions on the sources of wealth in an application form or customer questionnaire. For example, if a natural person attributes the source of his wealth to inheritance, he/she may be asked to provide a copy of the relevant will or grant of probate. In other cases, a natural person may be asked to provide sufficient bank or salary statements covering a number of years to draw up a picture of his/her sources of wealth.
10. (h) A Relevant Person might commission a third party report to obtain further information on a customer or transaction or to investigate a customer or beneficial owner in very high risk cases. A third party report may be particularly useful where there is little or no publicly available information on a person or on a legal arrangement or where a Relevant Person has difficulty in obtaining and verifying information.
11. (i) In AML 7.1.1(f) circumstances where it may be applicable to require the first payment made by a customer in order to open an account with a Relevant Person to be carried out through a bank account in the customer's name with a financial institution specified in AML 7.1.1(f) include:
12. (i) where, following the use of other EDD measures, the Relevant Person is not satisfied with the results of due diligence; or
13. (ii) as an alternative measure, where one of the measures in AML 6.4.1 cannot be carried out.