Enhanced Due Diligence (EDD): When Is It Required and What Must You Do?

Standard customer due diligence covers most clients. But for clients who pose elevated money laundering or terrorism financing risks, AUSTRAC requires Enhanced Due Diligence (EDD) — additional verification steps, source of wealth documentation, and senior management approval.

Which clients automatically trigger EDD?

AUSTRAC's rules require EDD for the following categories:

• Foreign PEPs: Automatically high risk — EDD always required
• Domestic PEPs: Risk-based assessment required — EDD if assessed as high risk
• High-risk jurisdiction clients: Clients from FATF-listed countries or countries identified as high risk in AUSTRAC guidance
• Complex or unusual structures: Multiple layers of ownership, offshore entities, nominee arrangements
• Clients assessed as high risk: Based on your internal risk assessment methodology

What EDD involves

EDD goes beyond standard identity verification. Typically it includes:

• Verification of source of wealth — where did the client's overall wealth come from?
• Verification of source of funds — where did the specific funds for this transaction come from?
• Certified copies of identity documents (not just electronic verification)
• Senior management approval before establishing the relationship
• More frequent ongoing monitoring
• More detailed record keeping

Source of wealth vs source of funds

These are different concepts. Source of funds refers to the origin of the specific money being used in a transaction — sale of property, inheritance, business profit. Source of wealth refers to the broader picture of how the client accumulated their overall assets — career income, business ownership, inheritance over their lifetime.

For high-risk clients, AUSTRAC expects you to understand both.

Documenting your EDD

EDD must be documented — a verbal explanation from the client is not sufficient. You must obtain and retain evidence: bank statements, tax returns, sale contracts, business valuation reports, or other documentary evidence of the client's wealth and the origin of funds.

When EDD fails — refusing the client

If a client cannot or will not provide the information needed to satisfy your EDD requirements, you must not provide the designated service. Proceeding without adequate EDD is an AML/CTF breach.

Related reading: Customer due diligence explained · PEP screening guide · AML risk assessment guide · Frequently asked questions