Certified Anti-Money Laundering Specialist Certification (CAMS) Practice Exam

What does Enhanced Due Diligence (EDD) require from a financial institution?

1. Regular audits of financial history

2. Simple verification of customer identity

3. Additional scrutiny of customer activities and legitimacy

4. Immediate reporting of all transactions over a certain amount

The correct answer is: Additional scrutiny of customer activities and legitimacy

Enhanced Due Diligence (EDD) is a process that requires financial institutions to conduct a more thorough and detailed examination of their customers, especially those considered higher risk. This means not just verifying a customer's identity, but delving deeper into their activities, financial behaviors, and the legitimacy of their sources of wealth. EDD typically includes evaluating the nature of the customer's business, understanding their transactions, and monitoring for unusual patterns or behaviors that could suggest money laundering or other illegal activities. This heightened scrutiny is crucial for financial institutions as it helps them mitigate risks associated with higher-risk clients and complies with regulatory requirements. By actively managing these risks through EDD, institutions can better protect themselves from being unwittingly used in illicit activities and significantly enhance their overall compliance programs. The other options either reflect insufficient measures (like simple verification of customer identity) or describe general protocols not specific to EDD requirements (such as regular audits or immediate reporting of transactions). Thus, the requirement for additional scrutiny aligns precisely with the objectives of Enhanced Due Diligence.