Enhanced Due Diligence (EDD) is a cornerstone of effective Anti-Money Laundering (AML) compliance. It goes beyond standard Customer Due Diligence (CDD) by requiring deeper investigation into high-risk customers, transactions, or industries.
For sectors such as banks, money services businesses (MSBs), and casinos, EDD is not just a regulatory requirement; it’s a safeguard against reputational damage, hefty fines, and financial crime.
This article explores how EDD differs across these three high-risk sectors, highlights best practices for implementation, and explains how an integrated AML solution like Alessa helps organizations simplify and strengthen their due diligence efforts.
Understanding Enhanced Due Diligence (EDD)
EDD involves collecting and analyzing additional information about customers or entities deemed higher risk. Typical triggers for EDD include:
- Relationships with Politically Exposed Persons (PEPs)
- Transactions from high-risk jurisdictions
- Complex corporate structures or shell entities
- Unusual transaction patterns inconsistent with customer profiles
According to the Financial Action Task Force (FATF), institutions must “apply enhanced measures where the risk of money laundering or terrorist financing is higher.”
The objective is clear: understand who you’re doing business with, why transactions occur, and whether they align with legitimate activity.
1. EDD in the Banking Sector
With vast transaction volumes and diverse customer bases, banks face constant exposure to laundering and fraud attempts.
Regulatory Landscape
Banks must comply with regulations such as the Bank Secrecy Act (BSA), USA PATRIOT Act, and global standards from FATF. Regulators expect detailed customer profiling and ongoing monitoring.
Key Challenges
Banks face three persistent challenges with Enhanced Due Diligence (EDD): efficiency, defensibility, and sustainability. EDD processes are often highly manual, driving up review times, investigator workload, and costs without delivering proportional risk reduction. At the same time, banks struggle to clearly demonstrate risk-based decision-making to regulators, particularly how risk factors justify the depth and outcome of EDD reviews. Finally, customer risk is dynamic, yet many EDD programs rely on static, periodic reviews that quickly become outdated as new activity, sanctions, or adverse information emerge.
EDD Practices in Banking
- Comprehensive Customer Risk Scoring: Incorporating behavioral analytics, transaction history, and source of funds.
- Periodic Review Cycles: High-risk accounts undergo more frequent reviews, sometimes every 6–12 months.
- Adverse Media Screening: Identifying links to criminal networks or public corruption.
- Cross-Border Transaction Analysis: Monitoring international wire transfers and correspondent banking relationships.
2. EDD for Money Services Businesses (MSBs)
Money Services Businesses, including remittance companies, currency exchangers, and prepaid card issuers, are uniquely vulnerable to money laundering. Their high transaction volume, cash-heavy operations, and global reach create compliance challenges.
Regulatory Requirements
MSBs are regulated under the Financial Crimes Enforcement Network (FinCEN) in the U.S., requiring registration and strict AML programs. Similar oversight exists globally (e.g., FINTRAC in Canada, FCA in the U.K.).
Common EDD Challenge
Smaller MSBs often lack resources for robust EDD programs. Manual checks can slow customer onboarding and expose compliance gaps.
EDD Practices in MSBs
- Enhanced Verification at Onboarding: Ensuring accurate identity checks through KYC and Screening modules.
- Transaction Pattern Recognition: Detecting structuring, smurfing, or repeated transfers below reporting thresholds.
- Geographic Risk Monitoring: Evaluating risks linked to corridors known for higher ML activity.
- Beneficial Ownership Identification: Mapping ultimate beneficial owners (UBOs) to reveal hidden connections.
3. EDD in the Casino and Gaming Industry
Casinos and online gaming operators are classified as “non-traditional financial institutions,” but they process billions in cash each year, making them prime money-laundering targets.
Regulatory Landscape
Under the BSA and equivalent international frameworks, casinos must maintain AML programs similar to banks. They must file Suspicious Activity Reports (SARs) and implement CDD/EDD processes for high rollers and VIP players.
Risk Spotlight
According to the U.S. Treasury’s 2024 National Money Laundering Risk Assessment, casinos remain a “persistent target” for laundering due to cash transactions and customer anonymity.
EDD Practices for Casinos
- Source of Funds Verification: Ensuring large buy-ins or payouts are traceable to legitimate sources.
- Player Behavior Monitoring: Identifying patterns like rapid buy-ins and withdrawals without gaming activity.
- Integration with Player Management Systems: Aligning gaming data with AML monitoring tools.
- High-Risk Customer Reviews: PEPs, offshore accounts, or linked entities are subject to deep due diligence.
Comparing EDD Requirements Across Sectors
| Aspect | Banks | MSBs | Casinos |
| Regulator | FinCEN, OCC, FATF, local regulators | FinCEN, FCA, FINTRAC | FinCEN, State Gaming Commissions |
| Customer Risk | Corporate & individual accounts, PEPs | Individual senders/receivers | Players, patrons, agents |
| EDD Focus | Complex ownership, cross-border transfers | Source of funds, transaction limits | Source of wealth, gaming behavior |
| Monitoring Frequency | Continuous | Transaction-based | Event-driven (buy-ins, payouts) |
| Reporting Obligation | SARs, CTRs | SARs, threshold reports | SARCs, CTRs |
| Common Pain Point | False positives, legacy systems | Limited resources | Manual recordkeeping |
| Tech Opportunity | Automation & analytics | Cloud-based AML tools | Integrated case management |
Each sector faces distinct operational realities but shares one common goal, knowing their customer better to prevent illicit activity.
Implementing Effective EDD: Best Practices
- Adopt a Risk-Based Approach: Prioritize resources toward high-risk relationships and jurisdictions. Use risk scoring models that adapt dynamically to changes in customer behavior.
- Centralize Data and Monitoring: Siloed systems cause delays and inconsistencies. Platforms like Alessa’s unified AML solution consolidate KYC, transaction monitoring, and case management for a 360° view of risk.
- Leverage Automation and AI: Automating repetitive EDD tasks (such as document verification or sanctions screening) enhances efficiency and accuracy.
- Ensure Continuous Training: Regular staff training ensures EDD teams remain updated on evolving red flags, typologies, and regulatory expectations.
- Audit and Review Regularly: Periodic audits identify process weaknesses and ensure compliance documentation is up to date for regulators.
The Future of Enhanced Due Diligence
As financial crime grows more sophisticated, EDD will increasingly rely on AI-driven analytics and data fusion. Real-time monitoring, network analysis, and contextual insights will replace static, checklist-style reviews.
Organizations that integrate EDD with real-time transaction data and behavioral analytics, as Alessa’s system does, will be better equipped to detect and prevent laundering before it happens.
Strengthening EDD with Alessa
Enhanced Due Diligence is not a box-ticking exercise,it’s a strategic defense mechanism. Whether you’re a bank, MSB, or casino, effective EDD enables your organization to safeguard its reputation, maintain compliance, and protect the integrity of the financial system.
Alessa empowers compliance teams with a single platform for KYC, Watchlist Screening, Transaction Monitoring, Risk Scoring, Regulatory Reporting and EDD,helping you identify, assess, and mitigate financial crime risk with confidence.
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