Reasons for Financial Institutions to Conduct Enhanced Due Diligence
1. Government Compliance
Section 312 of the PATRIOT Act requires financial institutions to conduct enhanced due diligence on private banking accounts and correspondent bank account involving foreign persons. The fines for not following these laws can be huge.
2. Minimize Financial Risks
More and more scandals come out each day involving hedge fund managers stealing millions of dollars. Performing due diligence reduces the risk of financial loss and can protect an institution’s assets against fraud, money laundering, and other types of illegal activity.
3. Minimize Reputational Risks
It may not always be possible to prevent illegal activity from happening. But it is certain that your financial institution does not want to get caught doing business with less than savory characters who have had a know past of wrong doing.