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Enhanced Due Diligence (EDD)

Definition

EDD (Enhanced Due Diligence) is the highest level of customer due diligence, applied to customers assessed as high-risk. It involves deeper investigation, more extensive documentation, senior management approval, and enhanced ongoing monitoring beyond standard CDD.

When EDD is Required

graph TD
    A[EDD Triggers] --> B[PEP - Politically Exposed Person]
    A --> C[High-risk country - FATF grey/blacklist]
    A --> D[Complex ownership structures]
    A --> E[High-value / unusual transactions]
    A --> F[Correspondent banking]
    A --> G[Private banking clients]
    A --> H[Cash-intensive businesses]
    A --> I[Adverse media hits]
    A --> J[Anonymous or nominee structures]

    style A fill:#e53935,color:#fff

EDD vs Standard CDD

Aspect Standard CDD Enhanced Due Diligence (EDD)
Identity verification Standard document + selfie Additional documents, multiple sources
Source of funds Self-declaration Documentary evidence required
Source of wealth Not typically required Full investigation of wealth origin
Beneficial ownership Standard UBO identification Deep ownership chain investigation
Approval authority Branch manager / auto-approve Senior management / MLRO / Compliance committee
Ongoing monitoring Standard transaction monitoring Enhanced monitoring with tighter thresholds
Re-KYC frequency 8-10 years 1-2 years
Documentation Standard record Extensive file with justification for acceptance
Relationship review Periodic Continuous

EDD Process

graph TD
    A[Customer Flagged as High-Risk] --> B[Collect Enhanced Documentation]
    B --> B1[Additional identity documents]
    B --> B2[Source of funds evidence]
    B --> B3[Source of wealth investigation]
    B --> B4[Business purpose justification]

    B1 & B2 & B3 & B4 --> C[Enhanced Screening]
    C --> C1[In-depth sanctions check]
    C --> C2[Comprehensive PEP check + family/associates]
    C --> C3[Adverse media deep search]
    C --> C4[Country risk assessment]

    C1 & C2 & C3 & C4 --> D[Senior Management Review]
    D --> E{Approval Decision}
    E -->|Approved with conditions| F[Account opened + enhanced monitoring]
    E -->|Rejected| G[Relationship declined]
    E -->|More information needed| B

    F --> H[Ongoing Enhanced Monitoring]
    H --> H1[Lower alert thresholds]
    H --> H2[More frequent reviews]
    H --> H3[Senior management periodic sign-off]

    style A fill:#e53935,color:#fff
    style D fill:#F57F17,color:#000

EDD for PEPs

PEPs require EDD regardless of other risk factors:

PEP Type Definition EDD Level
Foreign PEP Political figure in another country Always EDD
Domestic PEP Political figure in own country EDD (risk-based in some jurisdictions)
International org PEP Senior role in UN, World Bank, etc. Always EDD
Family member Close family of any PEP EDD
Close associate Known business/personal associate of PEP EDD

PEP-specific EDD measures:

  • Senior management approval to establish/continue relationship
  • Establish source of wealth and source of funds
  • Enhanced ongoing monitoring throughout the relationship
  • Annual relationship review with documented rationale

Source of Funds vs Source of Wealth

Concept What It Means Evidence Required
Source of Funds (SOF) Where the money for this specific transaction comes from Bank statements, salary slips, sale proceeds
Source of Wealth (SOW) How the customer accumulated their total wealth over their lifetime Inheritance records, business profits, investment history, property ownership

Key Takeaways

Summary

  • EDD is the highest level of due diligence — applied to high-risk customers, PEPs, and complex structures
  • Requires senior management approval, extensive documentation, and enhanced ongoing monitoring
  • Source of funds AND source of wealth must both be established and documented
  • PEPs always require EDD — including family members and close associates
  • EDD customers are re-verified every 1-2 years (vs 8-10 years for standard CDD)
  • Failure to apply EDD when required is a major compliance violation leading to significant fines