What is enhanced due diligence (EDD)?
Enhanced due diligence is where a screening result turns into investigative work: more information gathered, more verification, source of wealth and source of funds established, senior management approval obtained, and closer ongoing monitoring applied.
EDD is required by FATF Recommendation 10 and by the EU framework whenever higher risk is identified, for PEPs, for relationships involving high-risk third countries, for complex or unusually large transactions with no apparent economic purpose, and for correspondent relationships. The recurring failure is procedural rather than analytical: firms record that EDD was applied without recording what it established, which leaves the file impossible to defend in a review.
What this workflow covers
SCOPE- Gather additional identity and ownership evidence, and evidence source of wealth and source of funds rather than accepting an account of them.
- Read adverse media in the languages of the countries where the subject operates.
- Obtain written senior approval before activation, and shorten the review cycle afterwards.
- A jurisdiction label does not decide this. A customer in a listed country can be low risk, and a domestic customer with an opaque structure can need far more work.
- EDD is proportionate additional work scoped to the identified risk, not an unlimited investigation.
Compliance glossary
TERMS- Source of funds
- The origin of the particular money involved in a transaction or relationship, evidenced by documents such as sale contracts or payslips.
- High-risk third country
- A jurisdiction identified as having strategic AML/CFT deficiencies, for which enhanced measures are required by the applicable rules.
Authoritative references
SOURCES- 01The FATF Recommendations — Recommendation 10 and Recommendation 19 (Higher-risk countries)
Financial Action Task Force
- 02Regulation (EU) 2024/1624 — enhanced due diligence measures
EUR-Lex, Official Journal of the European Union
Frequently asked questions
Q&A- When is EDD mandatory?
- Where higher risk is identified, including PEP relationships, relationships involving high-risk third countries, cross-border correspondent relationships, and complex or unusually large transactions with no apparent lawful purpose. National rules add further mandatory cases, so check the local list rather than the FATF text alone.
- What does EDD involve in practice?
- Obtaining additional information on the customer and the intended nature of the relationship, establishing source of wealth and source of funds, obtaining senior management approval, and applying increased monitoring with more frequent review.
- Source of funds or source of wealth: which do we need?
- Both, normally. Source of funds is the origin of the specific money in the transaction or relationship; source of wealth is the origin of the customer's total assets and how they were built. Each has to be evidenced rather than asserted.