Due diligence explained

An overview of Enhanced Due Diligence

Enhanced due diligence (or EDD) is deeper background research on a person or company that is carried out when the risk of dealing with them is higher than normal. It goes beyond identity verification by gathering additional information to uncover potential legal, financial, reputational, and regulatory concerns.

How it differs from standard due diligence

Standard due diligence such as those employed by banks for standard customer onboarding confirms identity of a person or a company by checking identity documents for individuals and legal documents such as articles of association, partnership agreements, or certificate of incorporation for companies. It also employs screening names against sanctions lists.

These are proportionate measures adopted for ordinary relationships where risk is low-to-medium. EDD applies when something raises the stakes like a politically exposed person on board or allegations of corruption and bribery or links to high-risk jurisdictions.

It uses a wider range of sources and deeper verification, goes further into ownership and background, and calls for senior judgement about what the findings mean and whether to proceed, restructure contracts or indemnities, or walk away from the deal.

Who needs it

Firms with a legal duty

Banks, insurers, investment managers and other businesses covered by anti-money-laundering rules must apply enhanced measures to higher-risk customers. Many jurisdictions also apply these rules to Designated Non-Financial Businesses and Professions (DNFBPs)*, such as lawyers, accountants and estate agents, usually for particular kinds of client work.

Everyone else with something to lose

Buyers of a business, investors, lenders, and companies appointing agents, distributors or partners in higher-risk markets. The reputational cost of onboarding a high-risk customer, partner or supplier can be substantial, even where EDD is not explicitly required by law or regulations.

* Under the Financial Action Task Force (FATF) glossary, DNFBPs are casinos, real estate agents, dealers in precious metals and dealers in precious stones, lawyers, notaries and other independent legal professionals and accountants, and trust and company service providers.

What triggers it

Politically exposed persons or entities. A senior public official, or their family or close associates or state-owned entities.
High-risk geography. Links to countries with weak financial controls or under sanctions.
High-risk sectors. Arms and defence, extractives, virtual assets, gambling, precious metals and other cash-intensive businesses.
Opaque ownership. Layered holding companies, nominee shareholders, or structures that make it hard to see who benefits.
Unexplained wealth or funds. A large deal where the source of money does not add up.
Unusual payment or intermediary arrangements. Payments to third parties or to accounts in another country, or agents and introducers with no clear role.
Possible sanctions matches. A name that resembles a listed party and needs to be resolved.
Adverse media. Allegations of fraud, corruption or other financial crime.
Inconsistent information. Mismatches between registry records, documents and what the counterparty says.
Behaviour. Reluctance to provide information, or requests that make little commercial sense.

Why it matters

Legal and regulatory exposure. Fines, licence risk and personal liability. In some regimes, civil liability for a sanctions breach does not depend on whether you knew.
Financial loss. Payments to fraudsters, and deals that unravel after completion.
Reputation. Being linked to a sanctioned or corrupt counterparty is hard to undo.
A defensible record. If a decision is questioned later, you can show what you checked and why you proceeded.

What it typically involves

Assessing the starting risk: where the counterparty is based or registered, who they are, what they do, and the nature of the proposed relationship, including any links to sanctioned jurisdictions or places with weak financial controls.
Reviewing questionnaire answers for self-declared PEP links or litigation history.
Tracing ownership and control back to the real people behind a company.
Evaluating whether the stated source of wealth and funds is plausible with the counterparty's profile.
Screening for sanctions, politically exposed persons and watchlists.
Searching adverse media, including in local-language sources where they matter for the jurisdiction.
Checking company registries, litigation, regulatory actions and insolvency records.
Flagging what open sources can’t resolve, as questions to put to the counterparty directly, such as the outcome of a case or whether a same-name finding is them.
Documenting what was found and from where, what could not be established and what the counterparty said when asked.
Deciding whether to proceed, restructure the deal or walk away.
If proceeding, deciding the level of ongoing monitoring required.

What it cannot do. EDD reduces uncertainty; it does not eliminate it. Findings depend on the records and information available and cannot capture what's not publicly accessible. Assessments are conducted at a specific point in time, and today's findings cannot predict future conduct. Ultimately, the decision to accept or mitigate the identified risks rests with you, based on your own risk appetite and, where necessary, independent legal advice.

Need enhanced due diligence on a counterparty?

Tell us who you are dealing with and what is at stake. For first-pass name checks, our Screening Service searches sanctions and other official lists.

This page is a general explanation of how enhanced due diligence works. Requirements differ by jurisdiction and and regulatory framework; the appropriate measures depend on the applicable obligations and your assessment of the risks involved.