In which scenarios is Enhanced Due Diligence (EDD) typically required?

Enhanced Due Diligence (EDD) is typically required when dealing with high-risk customers or jurisdictions to mitigate potential risks associated with money laundering and financing of terrorism. The rationale behind EDD is that high-risk situations, such as those involving politically exposed persons (PEPs), regions prone to corruption, or customers with complex ownership structures, warrant deeper scrutiny to prevent illicit activities.

EDD includes more thorough investigation processes, such as verifying the source of funds, conducting ongoing monitoring of transactions, and potentially more comprehensive background checks. This heightened level of scrutiny ensures that financial institutions are proactive in identifying any suspicious activity that may arise from these higher-risk entities.

In contrast, low-risk customers do not require such extensive measures; thus, they typically go through standard due diligence processes. Similarly, specific operational timeframes, such as only initiating transactions on weekends, do not necessitate EDD as risk assessment is based on customer and jurisdictional risk, not on timing. Lastly, closing customer accounts does not inherently trigger a requirement for EDD, as that action may be routine or based on factors unrelated to the customer’s risk profile.