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Enhanced Due Diligence (EDD) Explained – 2025 Beginner Guide

Enhanced Due Diligence (EDD) is the most detailed level of risk assessment in KYC and AML. It goes far beyond normal Customer Due Diligence (CDD) and is used only for high-risk customers.

This beginner-friendly guide explains what EDD is, when it is required, examples, checklists, documentation, and modern EDD practices used by global banks and fintechs in 2025.

What Is Enhanced Due Diligence (EDD)?

Enhanced Due Diligence is an advanced form of due diligence that involves:

• Deeper verification
• More detailed documentation
• Stricter evaluation of customer activities
• Continuous, enhanced monitoring

EDD is required when a customer presents a higher risk of financial crime.

When Is EDD Required? (2025 Standards)

• PEPs (Politically Exposed Persons)
• High-value customers
• Customers with adverse media
• Sanctions nexus or high-risk jurisdictions
• Complex ownership structures
• Crypto-related businesses (VASPs)
• High-risk industries (casinos, arms, extractives)
• Unexplained wealth or unclear source of funds
• Multiple name variations or identity inconsistencies
• Large or unusual financial activities

What Documentation Is Required for EDD?

• Verified identity documents
• Comprehensive address verification
• Source of Funds (SoF) documentation
• Source of Wealth (SoW) documentation
• Detailed business documentation (for corporates)
• Ownership structure charts
• UBO verification
• Bank statements (3–12 months)
• Tax returns (multiple years)
• Proof of income
• Contracts, invoices, financial statements

EDD Checklist (Beginner Friendly)

• Verify identity & address with stronger checks
• Review customer’s background and occupation
• Evaluate business model & financial activity
• Review transactional behaviour
• Obtain source of funds & source of wealth
• Conduct enhanced sanctions, PEP & adverse media checks
• Document detailed risk assessment
• Seek senior management approval
• Increase monitoring frequency

Examples of EDD in Real Scenarios

Example 1 – PEP Opening a New Account

A PEP wants to deposit $250,000. EDD includes source of wealth verification, tax returns, business documents, and senior approval.

Example 2 – Crypto Company Opening Account

A crypto exchange applies for a corporate account. EDD includes regulatory licenses, ownership structure, transaction flows, and blockchain wallet checks.

Example 3 – Customer With Adverse Media

Customer linked to fraud in multiple articles → full EDD review, SoF/SoW, and enhanced monitoring.

EDD Red Flags (2025)

• Large unexplained deposits
• Mismatched income vs claimed profession
• Use of offshore entities
• Negative news involving corruption or fraud
• Multiple layers of ownership hiding UBOs
• Transactions involving high-risk jurisdictions
• Customer avoids providing documents
• Political exposure

Frequently Asked Questions (FAQ)

Is EDD mandatory?

Yes — EDD is legally required for high-risk customers under AML laws.

Is EDD only for PEPs?

No. EDD applies to any customer with increased financial crime risk.

Does EDD delay onboarding?

Sometimes yes. EDD is more detailed and may require multiple documents and approvals.