Enhanced Due Diligence
1. Practical definition #
EDD is a deeper review used when the customer, transaction, geography, product, delivery channel or screening result creates higher ML/TF/PF risk.
2. Why this matters for AML practitioners #
Normal CDD may be insufficient for higher-risk relationships. EDD helps the firm understand risk, justify acceptance or rejection, and create an audit trail for MLRO and regulator review.
3. Trigger events #
- Foreign PEP or high-risk domestic/international organisation PEP.
- High-risk geography or FATF call for EDD/countermeasures.
- Sanctions proximity or possible ownership/control risk.
- Serious adverse media.
- Complex or opaque beneficial ownership.
- Unusual transaction pattern.
- High-risk sector or product.
- Non-face-to-face onboarding without adequate controls.
- Third-party payments without clear rationale.
- VASP/crypto high-risk exposure.
- TBML indicators.
4. Source basis #
- SRC-FATF-001: RBA, CDD, PEP, high-risk countries, STR/SAR, internal controls.
- SRC-FATF-002: FATF geographic exposure risk triggers.
- SRC-FATF-006: TBML indicators.
- SRC-FATF-003: VASP/crypto risk.
5. Practitioner workflow #
- Identify EDD trigger.
- Explain why normal CDD is not enough.
- Collect additional information about customer, UBOs, source of funds, source of wealth and transaction purpose.
- Verify information using independent reliable sources where possible.
- Increase screening depth: aliases, transliterations, related parties, corporate network, historic names.
- Review adverse media and enforcement history.
- Assess whether senior approval is required.
- Recommend onboarding, decline, restrictions, enhanced monitoring or MLRO escalation.
- Preserve EDD memo and evidence.
6. Additional information to collect #
- Source of funds evidence: bank statements, sale agreement, salary/dividend records, contract, invoice, audited accounts, exchange records.
- Source of wealth evidence: business ownership history, asset sale history, inheritance/gift evidence, audited financials, tax documents where available.
- Detailed transaction rationale.
- Expected counterparties and geographic exposure.
- Proof of business activity.
- UBO/control proof beyond declarations.
- Negative media explanation and independent corroboration.
7. EDD red flags #
High#
- Customer cannot explain wealth origin.
- Wealth appears inconsistent with known profile.
- High-value transaction lacks economic rationale.
- Customer changes story after questions.
- Corporate structure includes unnecessary offshore layers.
Critical#
- EDD reveals likely sanctioned ownership/control.
- Customer appears to be acting for undisclosed third party.
- Information suggests proceeds of crime, TF or PF.
- Further questions may tip off customer.
8. Decision matrix #
| EDD finding | Required action |
|---|---|
| Risk explained and evidence supports profile | Recommend approval with review cycle |
| Risk partly explained but residual risk remains | Recommend conditions, monitoring and senior approval |
| Material gaps remain | Request information or recommend decline |
| Suspicion exists | Escalate to MLRO for STR/SAR decision |
| Sanctions/PF risk exists | Escalate immediately to MLRO/legal sanctions process |
9. Example output #
# EDD Memo
Trigger: [why EDD was required]
Customer profile: [summary]
Risk factors: [list]
Additional evidence reviewed: [list]
Source of funds: [assessment]
Source of wealth: [assessment]
UBO/control: [assessment]
Adverse media/sanctions/PEP: [assessment]
Residual risk: [low/medium/high/critical]
Recommendation: [approve/approve with conditions/request info/decline/escalate]
Source basis: SRC-FATF-001; [additional source IDs]10. Related pages #
Source of wealth and source of funds evidence#
SRC-WOLF-004 distinguishes Source of Wealth from Source of Funds and provides an industry-practice framework for proportionate evidence collection. SRC-WOLF-003 supports a risk-based approach to deciding the depth of EDD.
For the complete distinction, evidence hierarchy, plausibility assessment, contradiction handling and escalation output, use the canonical Source of Wealth and Source of Funds page.
EDD review documentation should record:
- what question the evidence is intended to answer;
- why the requested evidence is proportionate to the risk;
- source reliability and coverage period;
- discrepancies between statements, documents and observed activity;
- residual uncertainty and approval/escalation status.