Enhanced Due Diligence (EDD)

Enhanced Due Diligence (EDD) refers to the heightened due diligence measures that financial institutions must apply to customers presenting an elevated risk of money laundering or terrorist financing. EDD goes beyond standard CDD requirements and includes in-depth background checks, expanded source-of-funds analysis, and intensified ongoing monitoring.

• Risk-based triggers: Applied to PEPs, correspondent banks, high-risk jurisdictions, unusually complex transactions
• Deep background investigation: Extended examination of source of wealth and source of funds
• Senior management approval: Business relationships with high-risk customers often require senior management sign-off
• Enhanced transaction monitoring: More frequent and detailed review of account activity
• Intensified documentation: More extensive record-keeping than standard CDD

EDD emerged in response to the recognition that a uniform standard of diligence was inadequate given the varying risk profiles of different customer groups. The FATF formalised the concept of risk-based differentiation and strengthened EDD requirements in its comprehensive 2003 revision. The Third EU Money Laundering Directive (2005) made EDD mandatory for specific high-risk situations. High-profile money laundering scandals — including the Danske Bank scandal (2018) and the Troika Laundromat case — led to further tightening of EDD requirements, particularly for correspondent banks and PEPs. In June 2024, the EU AML Package was adopted, harmonising EDD requirements in a directly applicable regulation (AMLR) and replacing the directive-based framework in the long term.

EDD applies globally in all jurisdictions with FATF-compliant AML legislation. Obliged entities include banks, securities firms, other regulated financial intermediaries, and certain designated non-financial businesses and professions (DNFBPs: lawyers, notaries, real estate agents, accountants, casinos). Mandatory triggers include: politically exposed persons (PEPs), correspondent banking relationships, customers from FATF-listed high-risk countries, anonymous or complex transaction structures.

• Extended identity verification and source of funds / source of wealth analysis
• Senior management approval prior to establishing the business relationship
• Enhanced and more frequent transaction monitoring
• Regular review and updating of customer profiles
• Documentation of EDD measures applied and risk decisions taken
• For correspondent banking: gathering sufficient information about the respondent institution

1 correction:
- effective_date wrong: 2005-12-26 based on incorrect 3AMLD date
1 update:
- last_amended should be updated to 2024-06-19 (EU AML Package)
1 clarification.