Enhanced due diligenceEDD

Digging deeper on the customers who carry more risk.

Most customers get standard checks. For a customer who looks riskier, such as a senior government official or someone from a high-risk country, the institution asks more questions and looks harder.

Heightened CDD applied to high-risk customers, including source-of-funds and beneficial-ownership inquiry. CDD is customer due diligence, the standard risk assessment, source of funds is where the money in the account comes from, and beneficial ownership is who ultimately owns or controls a customer that is a company.

Enhanced due diligence (EDD) typically adds several measures:

• Source of funds and source of wealth, which ask where the money in the account and the customer's overall wealth came from.
• Beneficial ownership inquiry, which traces who ultimately owns or controls a customer that is a company.
• Senior management approval, which requires a senior person to sign off on the relationship.
• Closer monitoring, which reviews the account's activity more often and more carefully.

Common triggers include:

1. Politically exposed persons, who hold prominent public roles.
2. High-risk jurisdictions, such as countries that the Financial Action Task Force has flagged for weak controls.
3. Complex ownership structures, where layers of companies hide who is behind them.
4. Unusual activity, such as transactions that do not fit the customer's profile.

EDD sits next to terms that are easy to mix up:

• Customer due diligence (CDD) is the standard level, and EDD is the deeper version for higher risk.
• Politically exposed person (PEP) is one of the most common triggers for EDD.
• Sanctions screening checks names against prohibition lists, which is separate from the deeper inquiry that EDD involves.

For more, see Enhanced Due Diligence (EDD): Meaning & Requirements.