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What are the AMLD5 requirements around Enhanced Customer Due Diligence (EDD)?

MLR 2017 requires relevant persons to conduct <a href="/glossarycollection/enhanced-due-diligence" style="color:#48277C;" target="_blank" title="Enhanced Due Diligence"><u>EDD</u></a> in cases where:<br/><br/>

a transaction is complex or unusually large, or there is an unusual pattern of transactions; and<br/><br/>

the transaction or transactions have no apparent economic or legal purpose.<br/><br/>

MLR 2019 splits out these criteria into three alternative limbs.<br/><br/>

5MLD extends the existing requirement to carry out enhanced monitoring of any business relationship or transaction with a person "established in" a high-risk third country so that it covers any relationship or transaction "involving" a high risk country. However, MLR 2019 clarifies that in the UK, "involving" means:<br/><br/>

a business relationship with a person established in a high-risk third country; or<br/><br/>

a transaction subject to <a href="/glossarycollection/customer-due-diligence" style="color:#48277C;" target="_blank" title="Customer Due Diligence"><u>CDD </u></a> anyway, to which either party is established in a high-risk third country.<br/><br/>

For these purposes, being "established in" a third country means:<br/><br/>

in the case of a legal person, being incorporated in or having its principal place of business in that country, or, in the case of a financial institution or a credit institution, having its principal regulatory authority in that country; and in the case of an individual, being resident in that country, but not merely having been born in that country.<br/><br/>

"High-risk third countries" remain those identified by the European Commission as such, although 5MLD broadens the assessment criteria, suggesting that the list will likely increase.<br/><br/>

MLR 2019 contains a number of additional requirements for business relationships or transactions involving a party "established in" a high-risk country. Obtaining additional information on:<br/><br/>

the customer and on the customer's beneficial owner(s);
the intended nature of the business relationship;<br/><br/>

the source of funds and wealth of the customer and the customer's beneficial owner(s); and<br/><br/>

the reasons for the intended or performed transactions.<br/><br/>

obtaining senior management approval for establishing or continuing the business relationship;<br/><br/>

carrying out enhanced ongoing monitoring of the business relationship by increasing the number and timing of controls applied, and<br/><br/>

selecting patterns of transactions that need further examination.14V

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