Enhanced Due Diligence: Triggers & Process

Enhanced due diligence, or EDD, is what you do when standard CDD isn't enough to get comfortable. FATF Recommendation 10 requires enhanced measures for higher-risk customers, and the FFIEC manual spells out what that looks like in practice. EDD means going deeper and demanding more evidence: more documentation, more verification, senior sign-off, and ongoing scrutiny.

The goal is to understand the relationship and the customer's money well enough that the institution can defend the decision to bank them. If you can't reach that comfort, EDD is also where you decide the relationship isn't worth the risk. Think of EDD as moving from 'we've met the minimum' to 'we genuinely understand this customer and can stand behind banking them.'

So what trips EDD? Most directly, a high-risk rating from the model in lecture five. Beyond that, certain categories trigger it almost automatically.

PEPs and their close associates, under FATF Recommendation 12, generally warrant enhanced measures and senior approval. Correspondent banking — where you provide accounts to other banks — is treated as inherently higher risk because you're relying on another institution's KYC; that's why FATF Recommendation 13 and the Wolfsberg CBDDQ exist. Private banking and high-net-worth relationships get EDD because of the size, secrecy, and complexity involved.

And high-risk geographies, opaque ownership structures, and serious adverse media all push a customer into the enhanced lane.

Here is the single most important distinction in this lecture, and a near-certain interview question. Source of funds is the origin of the specific money moving through the account right now — this deposit came from the sale of a property, that wire is proceeds of a business contract. Source of wealth is bigger: it's how the customer accumulated their total net worth over time — an inherited estate, decades of business ownership, an IPO.

A wealthy client might have a clean source of funds for one transaction while their overall source of wealth remains unexplained, or vice versa. EDD typically requires you to understand and corroborate both. Know this cold.

Interviewers will often hand you a one-line fact and ask which one it describes, so practice classifying examples until it's instant.

EDD isn't a longer questionnaire — it's a verified one. When a customer says their wealth comes from a family manufacturing business, you don't just write that down; you corroborate it. For source of funds, that might mean a sale contract, a property deed, payslips, or bank statements showing the money's path.

For source of wealth, it might mean company registration and filings, audited financial statements, tax records, or a credible public profile. The analyst's skill is checking whether the pieces form a coherent, consistent story. If a customer claims modest earnings but moves enormous sums, or the documents contradict the narrative, that inconsistency is the finding — and it heads toward escalation.

Two special cases deserve a word. In correspondent banking, you're trusting another bank's controls, so EDD focuses on understanding that bank's AML program, confirming it isn't a shell bank with no physical presence, and learning whether it provides nested correspondent services to other institutions you can't see. The Wolfsberg Group's Correspondent Banking Due Diligence Questionnaire standardizes exactly these questions across the industry.

In private banking, the FFIEC manual expects heightened senior oversight, a designated owner of the relationship's due diligence, and frequent review — because the wealth is large, often offshore, and sensitive. In both, the discipline is the same: never let revenue pressure override an unverifiable counterparty. The common thread across both special cases is humility about what you can't see, and a refusal to let commercial pressure paper over a gap in understanding.

Let's recap. EDD is the deeper, evidence-backed diligence you apply to higher-risk customers under FATF Recommendation 10. It's triggered by a high-risk rating, by PEPs, by correspondent and private banking, and by high-risk geographies or structures.

Its heart is the difference between source of funds — the specific money now — and source of wealth — the whole net worth — both corroborated, not just recorded. You've now onboarded, screened, rated, and deepened the file. But customers change, and a file that's true today can be dangerously wrong next year.

Keeping it current is ongoing monitoring, and it's next. Go test yourself first.