Customer Due Diligence (CDD)

Customer due diligence is a core part of anti-money laundering rules. It goes beyond simply checking identity. It includes identifying the customer and verifying their identity using reliable documents or data, identifying the beneficial owners of companies, understanding the purpose of the account or relationship, and monitoring transactions on an ongoing basis.

For example, when a company opens a business bank account, the bank checks the company's registration documents, identifies the people who ultimately own or control it, and asks about the nature of its business and expected transactions.

The level of checks depends on risk. Simplified due diligence may apply to low-risk customers, while enhanced due diligence applies to higher-risk customers, such as politically exposed persons or customers from high-risk countries, and involves more detailed checks on sources of funds and wealth.

CDD is often used interchangeably with know your customer, although CDD is sometimes seen as the broader, ongoing process. Standards are set internationally by the Financial Action Task Force and implemented in national laws.