What is enhanced due diligence (EDD)?

Enhanced due diligence (EDD) involves the application of additional scrutiny to high-risk customers to mitigate potential risks associated with money laundering and financing of terrorism. In situations where customers pose a heightened risk due to factors such as their geographical location, the nature of their business, or transaction behaviors, EDD requires more thorough investigation compared to standard due diligence procedures. This process may include more comprehensive checks on the customer’s background, an in-depth analysis of their transaction patterns, and ongoing monitoring to ensure that their activities remain compliant with regulatory expectations.

The focus of EDD is to create a more stringent framework to uncover any unusual or suspicious activities that could indicate illicit behavior, ultimately helping financial institutions protect themselves against compliance risks. It stands as a critical component in an overall risk management strategy to ensure that organizations can identify and address potential threats effectively.