Enhanced Due Diligence (EDD)

🔹 Definition

Enhanced Due Diligence (EDD) refers to a higher level of scrutiny applied to customers or transactions that pose an increased risk of money laundering, terrorist financing, or other financial crimes. EDD is a core component of a risk-based approach to Anti-Money Laundering (AML) compliance and is typically required for high-risk clients, such as politically exposed persons (PEPs), customers from high-risk jurisdictions, or those with complex ownership structures.

EDD goes beyond standard KYC by requiring more extensive identity verification, source of funds and wealth analysis, and ongoing monitoring.

🔹 Frequently Asked Questions (FAQs)

Q1: When is EDD required?
EDD is typically triggered when:

• The customer is a PEP or associated with one
• The customer resides in or operates from a jurisdiction with strategic AML/CFT deficiencies
• There is a complex legal structure or unclear beneficial ownership
• The transaction involves unusual behavior, large sums, or offshore accounts
• There is a suspicion of money laundering or terrorist financing

Q2: What does EDD involve?
Key components include:

• Detailed customer profiling (occupation, business background, transaction purpose)
• Verification of source of funds and wealth through documentation and declarations
• Adverse media checks and reputational risk reviews
• Increased frequency of transaction monitoring and periodic reviews
• Senior management approval before onboarding or continuing the relationship

Q3: How does EDD support compliance?
EDD helps institutions:

• Mitigate exposure to criminal misuse of the financial system
• Meet regulatory expectations under FATF, EU AML Directives, MAS Notices, and other frameworks
• Build robust audit trails for inspections and suspicious transaction reporting (STR)
• Protect brand reputation and reduce regulatory penalties

Q4: Can EDD be automated?
Partially. While human judgment is often needed for final approval, automation can:

• Trigger EDD workflows based on risk scores
• Conduct real-time screening (e.g., PEP, sanctions, adverse media)
• Aggregate documentation requests and flag gaps
• Assist in audit trail and reporting through compliance dashboards