Enhanced customer due diligence

Identify why enhanced CDD applies

Enhanced customer due diligence (EDD) is additional due diligence required in specified circumstances. The measures must be appropriate to the customer’s risk. Section 32 includes high customer risk and specified foreign PEP, high-risk jurisdiction and nested service connections.

It also covers a suspicious matter report (SMR) obligation when the entity proposes to continue designated services. Enhanced CDD must not delay an SMR beyond its required timeframe.

The Rules add further circumstances, including specified unusual-service requests. The conditions differ, so identify the applicable trigger rather than treating all enhanced cases as identical. A business may also have relevant policy requirements, but its policy cannot remove a mandatory legal trigger.

Sources: Federal Register of Legislation: Section 32(a) to (f); Federal Register of Legislation: Sections 6-20 and 6-21; AUSTRAC: Source of funds and source of wealth; When you must apply specific enhanced CDD measures.

Identify the trigger
Establish why enhanced CDD applies.
Identify the missing information
Describe the uncertainty or risk that needs a response.
Select relevant measures
Choose appropriate information and controls. Consider specific PEP requirements separately.
Assess the evidence
Test the explanation and record the conclusion or escalation.

Connect the extra check to the risk

Invented example. Illustrative review sequence. Funds and wealth checks are not relevant to every risk. Apply the particular requirements and conditions.

Follow the process from top to bottom.

Choose measures that address the risk

After identifying the trigger, ask what additional knowledge or control is needed. AUSTRAC explains that funds and wealth checks are not relevant to every kind of risk. Rules section 6-21 also links its specified requirements to relevance to the nature of the customer's risk. Specific PEP requirements need separate consideration.

A request for extra documents should therefore have a clear purpose. If the concern is hidden control, an unrelated document about an address may not resolve it. Keep the reason for the measure beside the evidence obtained. More information is useful only when it improves the required assessment.

Rules section 6-21 applies to the triggers in Act section 32(a), (b) or (d), subject to relevance. Section 6-23 separately addresses the specified PEP’s funds and wealth.

Invented example: unclear funding

A fictional customer proposes an arrangement whose funding is inconsistent with the business's understanding of the customer. The reviewer identifies the inconsistency and considers suitable information about how the transaction will be funded. The review tests the explanation against appropriate evidence rather than requesting a standard bundle without a reason.

The outcome may explain the inconsistency or leave questions unresolved. This example does not dictate the result, establish a reporting obligation or imply that unexplained wealth is always criminal. It illustrates the link between a concern, the selected enquiry and a conclusion based on what was actually found.

Do not treat the label as completion

A practical review can ask: why did enhanced CDD apply, which measures were selected, what did they establish, and what decision followed? A file labelled enhanced with no answers to those questions is difficult to assess. A vendor result may support a measure but does not supply the whole decision.

Keep special approvals and other applicable duties visible. This page does not cover every reporting, sanctions or ongoing CDD requirement. It explains how to connect the trigger to the response. Any decision to proceed must still fit the actual law and the business's policies, rather than the mere completion of a checklist.