SDD/ CDD/ EDD = DD

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The title may appear unusual without any context, and you might be wondering about it. The reason is that everything I've encountered lately has centered on DD which stands for Due Diligence. A term you might have come across in various contexts. However, I’m here to provide my perspective on due diligence specifically in relation to Anti-Money Laundering (AML).
 
What exactly is due diligence? Is it merely research focused on a particular topic, or does it involve uncovering elusive details? Due diligence is a blend of the both; it represents a thorough investigation aimed at uncovering factors that could influence a process, a decision, or any significant matter at hand.

For compliance professionals, due diligence means gathering and documenting crucial information required by regulatory authorities guidelines. This includes details about the business, key stakeholders, any negative media attention, as well as relevant policies and codes of conduct. Even though this may initially appear simple, the numerous local and global guidelines, along with a lack of understanding, can complicate the process and often result in delay.
 

 source: google.com
 
The Financial Action Task Force (FATF) which leads global action to tackle money laundering, terrorist and proliferation financing has divided due diligence in three categories mainly, Simplified Due Diligence (SDD), Customer Due Diligence (CDD) and Enhance Due Diligence (EDD). The table below summarizes the due diligence practices commonly adopted by companies.
 
source: https://www.blogger.com/blog/post/edit/2553291772461004659/6271866415809173625?hl=en

Notes

  1. Due Diligence (Entities / Companies / Individual) - Due diligence is typically conducted on companies, individuals, and associated stakeholders. I have classified these entities into three risk categories; however, the risk assessment may vary based on additional investigations. Therefore, it is not a strict guideline that they must fall into the aforementioned categories.
  2. Risk - Categorization relies on various factors, not solely on the type of legal entity. However, as a general guideline, entities can be classified for better understanding. 
  3. Legal Identification - It encompasses the legal name, registration number, registered address, and additional details. The primary source may include incorporation documents, articles of association, and similar records.
  4. Identify and Verify - Identifying refers to the process of locating a specific detail on the internet or within any document. Verification involves confirming the accuracy of the identified detail.
  5. Address - It may include the business address, mailing address or any other based on the guidelines.
  6. Nature of business (Industry) - Industries including mining, technology, mineral extraction, real estate, gaming, arts and artifacts, precious metals, and transportation, among others.
  7. Beneficial Ownership - Individuals holding ownership stakes of over 25% or exceeding 10% in the company, depending on the guidelines.
  8. Management - CEO, CFO, Board of Directors, Chairman etc.
  9. Source of fund (SOF) - Revenue sources of company / individuals.
  10. Source of wealth (SOW) - Mostly use for beneficial owners.
  11. RBA - Risk Based Approach (RBA) need to be followed in case of doubt.

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