Enhanced Due Diligence (EDD) refers to additional checks and controls that must be applied when a business relationship or transaction is assessed as carrying a higher risk of money laundering or terrorist financing. EU law specifically requires EDD in several mandatory circumstances: when the customer is a Politically Exposed Person (PEP), when the customer is based in or connected to a high-risk third country identified by the European Commission, and in cases of correspondent banking relationships (i.e., when one bank provides services to another bank). Similar EDD provisions are to be found in other jurisdictions as well.
In practice, EDD typically involves gathering more detailed information about the customer — such as their source of wealth and source of funds — and subjecting their transactions to closer and more frequent scrutiny. Corobboration of source of wealth and source of funds is ofter required. Senior management approval is also often required before establishing or continuing an EDD relationship.
