How to Conduct Effective Enhanced Customer Due Diligence (ECDD)

Standard Customer Due Diligence (CDD) is the baseline for verifying client identities. But what happens when a client presents a higher risk of money laundering or terrorism financing? That is when Enhanced Customer Due Diligence (ECDD) is required.

When is ECDD Required?

Under Australian law, reporting entities must apply ECDD in specific situations as outlined in the AML/CTF Rules. According to AUSTRAC's ECDD guidance, these situations include:

• When the customer is identified as a Politically Exposed Person (PEP) or an associate of a PEP.
• When a transaction involves a designated high-risk jurisdiction.
• When the reporting entity determines, based on their AML/CTF Program risk assessment, that the ML/TF risk is high.
• If a Suspicious Matter Report (SMR) has been or is required to be submitted.

Key Components of an ECDD Program

ECDD is not just a checkbox; it requires senior management involvement and deeper investigation into the client's background.

1. Obtain Senior Management Approval: Establishing or continuing a business relationship with a high-risk customer requires explicit sign-off from senior management.
2. Establish Source of Wealth (SoW): You must take reasonable measures to identify how the customer acquired their overall wealth. Document evidence where possible.
3. Establish Source of Funds (SoF): Determine the origin of the specific funds involved in the transaction or relationship.
4. Enhanced Ongoing Monitoring: High-risk clients must be monitored more frequently and with deeper scrutiny to ensure their risk profile hasn't deteriorated further.