Enhanced due diligence (EDD)

Due diligence is usually divided into three levels. Simplified Due Diligence (SDD) is used for low-risk cases like government agencies or public companies and involves only basic identity checks. Customer Due Diligence (CDD) is the standard for most clients and includes verifying identity, assessing risk, and monitoring transactions. Enhanced Due Diligence (EDD) is for high-risk individuals or transactions and requires deeper background checks, more documentation, and ongoing monitoring. In short: SDD is for minimal risk and light checks, CDD is for regular risk and standard checks, and EDD is for high risk and thorough investigation.

EDD measures depend on the level of risk but can include collecting proof of the source of funds or wealth, verifying business ownership and structure (including ultimate beneficial ownership), conducting thorough background checks such as adverse media screening, and requesting extra identity documents. Continuous monitoring for unusual or large transactions, in-person verification, and requiring executive or compliance approval may also be necessary. EDD is often required for politically exposed persons (PEPs), customers from high-risk countries, large international transactions, complex ownership structures, and businesses in cash-intensive or regulated industries like cryptocurrency, gambling, or NGOs.

Global and local regulations determine when enhanced due diligence (EDD) is required and how it should be carried out. For example, the FATF sets international rules that require EDD for high-risk customers, politically exposed persons (PEPs), and cross-border relationships. EU anti-money laundering directives require EDD when dealing with high-risk countries or certain types of customers. In the U.S., FinCEN requires financial institutions to use risk-based procedures, including EDD for some legal entities and complex transactions. The Bank Secrecy Act also requires U.S. institutions to have written policies explaining how and when they perform EDD. Not following these rules can lead to fines, damage to reputation, and a higher risk of criminal liability.