PRACTICAL SOLUTIONS
EDD methods and analysis
EDD can be achieved in numerous ways : The collection of additional documentation at account opening for higher-risk customers is EDD ; performing site visits to higher-risk customers is EDD ; asking for detailed financial documents and / or transactional documents like invoices or bills of lading from higher-risk customers is EDD ; and more frequent periodic monitoring of higher-risk customers is EDD . Whatever methods are chosen for EDD , the EDD steps or processes must be clearly outlined in the FI ’ s policies and procedures and are subject to examination by federal functional regulators . The policy or procedure must also identify actions that will be undertaken when insufficient or conflicting data is received . 2 CDD , including EDD processes , is one of the five pillars of an anti-money laundering ( AML ) program . There is little tolerance for error .
The goal for all EDD reviews is to gain a clear understanding of the customer to identify potentially reportable suspicious activity and to reduce the risk of the FI ’ s unwitting participation in illicit finance . 3 The analysis of the information collected from CDD and , when applicable EDD , is a critical component of understanding the customer . Like assembling jigsaw puzzle pieces to form a big picture , the AML investigator analyzes bits of information to form a solid understanding of the customer to determine if the illicit activity is occurring . The analysis of the data is critical to any risk decisions or actions the FI considers relative to the customer .
The EDD analysis must be complete , well-founded , understandable and draw a conclusion as to the risk the customer presents to the institution or to the legality of the activity being reviewed . An effective analysis is the basis for the risk decision-making process . Breaking the analysis into components can help ensure the analysis is effective and not merely words or facts strung together .
The analysis process takes the pieces of information gathered during the review , filters out material not important to the analysis and organizes and interprets the data from a risk perspective , resulting in a defendable conclusion . The conclusion must be written in such a way that any person not familiar with the review or the customer ( e . g ., an auditor or examiner ) can see the path taken to reach a conclusion .
The conclusion must adequately answer a “ why ” question . Why does the customer not pose an enhanced money laundering risk to the institution ? Why is the activity reviewed not reportable through suspicious activity reports ? Why should the customer ’ s account be opened or closed ?
The “ five whys ”
Listing facts on paper is not an analysis . Consider this example : “ The customer initiated 25 wire transfers to France totaling $ 500,000 in the past six months .” This may be true , but it gives no indication of whether the activity has a business or lawful purpose or is a type of transaction in which the customer would be expected to engage . 4 The statement does not indicate why it is important to the review . Contrast that with : “ The dog groomer , having one location in New York , initiated 25 wire transfers to France totaling $ 500,000 in the past six months , which is out of character and not expected for a business of the size or type .” The same set of facts has become relevant due to adding relevant supporting facts .
One tool that is helpful in eliciting relevant facts and forming an effective conclusion is a tool that is often used in root-cause analysis called the five whys . Developed in the 1930s by Sakichi Toyoda , a Japanese industrialist and founder of Toyota Industries , the five whys attack a problem by asking “ why ” five times to get to the root cause of a problem . Table 1 breaks down the five whys method .
An effective analysis is the basis for the
risk decisionmaking process
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