What is an enhanced due diligence (EDD) process?

The enhanced due diligence (EDD) process refers specifically to the thorough and detailed investigation conducted for high-risk customers. This is an essential part of anti-money laundering (AML) protocols, particularly for financial institutions needing to comply with regulations designed to prevent financial crime.

Companies apply EDD when a customer is identified as high-risk due to factors such as their geographical location, the nature of their business, transactional behavior, or their political connections. The purpose of this rigorous investigation is to gather more detailed information about the customer, understand their financial activities better, and assess any associated risks that could emerge. This process may include verifying the source of funds, obtaining additional identification documents, and monitoring accounts more closely. By ensuring a deep understanding of high-risk customers, organizations can better mitigate risks and comply with regulatory requirements.

In contrast, the other options denote processes that are less comprehensive. A basic review of customer profiles, for instance, does not delve deeply enough into the risks associated with specific customers, and routine account verifications focus on maintaining current data rather than identifying potential risk factors. An automated transaction monitoring process, while essential for ongoing compliance, operates on algorithms and does not involve the depth of inquiry characteristic of EDD. Thus, EDD is a critical step for