Globalization has presented opportunities to several legitimate businesses. However, it has also led to an increase in fraud and scams. According to Nasdaq, the loss from payment fraud exceeded $485.6 billion in 2023. To counter these rising threats, the Financial Action Task Force (FATF) introduced updated recommendations in February 2025, emphasizing the use of the Enhanced Due Diligence (EDD) approach. Enhanced Due Diligence falls within the same framework as Customer Due Diligence (CDD) and Simplified Due Diligence (SDD), but provides for more extensive verification to combat money laundering and terrorist financing.
From banks and fintech entities to international companies and service providers, diverse industries are utilizing EDD measures to prevent illicit transactions and maintain required transparency. If your business falls into an eligible category, you must understand what EDD is all about and how it can impact your business.
What is Enhanced Due Diligence?
Enhanced Due Diligence (EDD) aims to curb transactions that pose a risk of money laundering and terrorist financing. It is a vital component of Anti-Money Laundering (AML) compliance, and the Financial Action Task Force (FATF) oversees its implementation. Several nations, including the US, Seychelles, BVI, and Belize, have adopted EDD to meet global transparency requirements. It is worth noting that EDD is mandatory for trust companies, financial institutions, and businesses pursuing transactions with high-risk jurisdictions.
Technically, EDD in AML aims to eradicate the following transactions coming from:
- High-risk customers such as Politically Exposed Persons (PEPs)
- Unknown businesses or shell entities
- Businesses carrying a high number of transactions
- Entities with bearer shares
- A company or a person whose trail and source of origin are difficult to track
- Entities belonging to a blacklisted or greylisted country.
What are the Objectives of Enhanced Due Diligence (EDD)?
The main objectives of EDD are:
- Obtaining additional information about the customer, such as the number of assets, occupation, and their address.
- Fetching customers’ information via public databases, the internet, and media searches, if required
- Regularly updating the identification data of the beneficial owner and customers.
- Obtaining additional information and ascertaining the nature of the business relationship.
- Pinpointing why a specific transaction has taken place.
- Verifying the source of funds and ensuring they have no ties to any criminal activity.
- Evaluating the transactional behavior of the high-risk customer.
- Implementing selfie verification to abide by the updated KYC norms.
Key Requirements to Follow for Enhanced Due Diligence (EDD)
As per FATF, implementing EDD requires:
- Maintaining thorough documentation of interactions and investigations of high-risk customers.
- Developing staff training on EDD and regulations.
- Prioritizing monitoring based on risk.
- Establishing robust data security measures.
- Implementing clear policies with regular audits.
How is EDD Different from CDD and SDD?
Enhanced Due Diligence (EDD) is a step more detailed than Simplified Due Diligence (SDD) and Customer Due Diligence (CDD). While they share similarities, EDD is way more comprehensive.
While SDD and CDD apply to clients with a low to moderate risk profile, EDD focuses on high-risk clients, while also paying close attention to the source of transactions. Additionally, it requires ongoing assessment to keep up with the global transparency requirements.
EDD involves cross-checking a number of documents, such as
- Invoices, bank statements, and more, for establishing the end-to-end timeline of cash flow
- Ultimate beneficiaries’ IDs and address proofs
- Documents showing the nature of the business
Enhanced Due Diligence Checklist: Understanding Key Steps
The following Enhanced Due Diligence checklist outlines the key steps typically involved:
Step 1: Perform an Initial Risk Assessment
This step involves identifying potential red flags when vetting a customer, following AML and FATF recommendations.
Step 2: Check for High-Risk Profile and Beneficial Ownership
Once you have performed the initial assessment, it is time to check whether the given customer fits the high-risk profile. Once done, pay close attention to the corporate structure and identify beneficial ownership.
Step 3: Conduct Background Investigation
This step requires performing background checks by scouting:
- Sanctions and watchlists
- Criminal records
- Adverse media searches
Step 4: Perform Financial Assessment
Finally, determine the source of the funds, ownership status, size, and frequency of transactions.
Step 5: Ongoing Monitoring
This is essential to stay aligned with the FATF recommendations for continuous surveillance.
EDD Implementation for Offshore Companies
Investors planning to launch offshore businesses in one of the following sectors may be subject to the implementation of EDD.
- Trust and Corporate Service Providers (TCSPs)
- Virtual Asset Service Providers (VASPs).
- Investment Business (IB)
- Fintech Entities
- Crypto Trading Platform
It is worth noting that banks in popular offshore jurisdictions are subject to EDD implementation, compelling them to conduct thorough verification in accordance with recent FATF recommendations.
How to Navigate EDD Checks for Bank Account Opening?
Once you have formed an offshore company, the next critical step is opening a corporate bank account. Offshore banks, especially in the Seychelles, Belize, and the BVI, will vet your paperwork against the updated EDD guidelines. Therefore, the scrutiny will be rigorous, which could result in delays or even rejection of the application.
One viable option to overcome this hassle is to partner with a certified agent or a service provider, such as BSW, who thoroughly understands local laws and banking regulations. With such knowledge and expertise, you can navigate the EDD checks seamlessly without any administrative hurdles.
High-net-worth clients, investors, fintech entities, and companies involved in crypto and online gaming are increasingly facing the threat of rigorous inspection, primarily driven by the recent EDD updates. This shift is reshaping the offshore landscape by making it more transparent. Entrepreneurs seeking offshore company formation may face increased scrutiny, particularly when applying for offshore banking, which can delay the process.
That’s where the Business Setup Worldwide (BSW) comes in!
With over 8 years of experience, BSW can provide customized solutions to your specific needs. Additionally, our extensive network of robust banking partners can help you choose a bank tailored to your needs. Our experts are well-versed in the latest guidelines and can help you overcome administrative hassles. Please contact us at +971 504808605 or email us to schedule a consultation.
