Glossary > Finance > Regulatory And Compliance > Anti-Money Laundering (AML)

Enhanced Due Diligence (EDD)

Enhanced Due Diligence (EDD) is a detailed investigation process that financial institutions or businesses carry out to thoroughly understand their customers, particularly those with higher risk profiles, in order to mitigate financial crimes like money laundering and terrorist financing.

Example #1

For instance, if a bank is opening an account for a politically exposed person (PEP), they may conduct EDD to assess the source of funds and the nature of the transactions to ensure they align with the customer's profile.

Example #2

Another example is when a company is entering into a high-value business partnership, they might conduct EDD to verify the legitimacy of the partner and the transparency of the business operations.

Misuse

Misuse of EDD could involve bypassing or not conducting thorough investigations for high-risk customers, which could lead to facilitating money laundering or terrorist financing. This lack of diligence can put the financial system at risk and allow illicit funds to flow undetected.

Benefits

The benefit of EDD is that it helps safeguard consumers and the financial system by identifying and mitigating risks associated with high-risk customers. By conducting detailed investigations, financial institutions can prevent illicit funds from entering the system and protect legitimate customers.

Conclusion

Enhanced Due Diligence plays a crucial role in protecting consumers and the integrity of the financial system by ensuring that businesses conduct thorough investigations for customers with higher risk profiles. The practice helps in preventing financial crimes like money laundering and terrorist financing, ultimately fostering a more secure and transparent marketplace.

Last Modified: 4/29/2024