Customer Due Diligence (CDD)
The Customer Due Diligence (CDD) Rule is a regulation issued by the Financial Crimes Enforcement Network (FinCEN) that enhances the ability of financial institutions to detect and prevent money laundering, terrorist financing, and other financial crimes.
According to FinCEN, the CDD Rule requires covered financial institutions to identify and verify the identities of the beneficial owners of legal entity customers at the time new accounts are opened. A beneficial owner is defined as an individual who owns 25% or more of a legal entity or exercises significant control over it.
To comply, institutions must develop and implement written policies and procedures that are designed to:
- Identify and verify the identity of customers;
- Identify and verify the identity of the beneficial owners of legal entities opening accounts;
- Understand the nature and purpose of the customer relationship to develop a customer risk profile;
- Conduct ongoing monitoring to identify and report suspicious transactions, and update customer information as needed.
These requirements form the cornerstone of risk-based anti-money laundering (AML) and Know Your Customer (KYC) programs.