Customer Due Diligence (CDD)
Definition
The process of identifying and verifying the identity of a customer and their beneficial owner, understanding the purpose of the business relationship, and conducting ongoing monitoring. Governed by FATF Recommendation 10. Applies at three intensity levels: simplified, standard, and enhanced.
- Governing standard
- FATF Recommendation 10
- Intensity levels
- 3: simplified, standard, enhanced
- Core elements
- Identity verification, beneficial owner check, ongoing monitoring
- Related process
- Know Your Customer (KYC)
Common questions
What triggers enhanced due diligence rather than standard CDD?+
Enhanced due diligence applies to higher-risk relationships, such as politically exposed persons, customers from jurisdictions with weak anti-money-laundering controls, or complex ownership structures that obscure the beneficial owner, and it requires deeper verification and more frequent ongoing review than the standard level.
How does CDD differ from KYC in practice?+
KYC is often used as the broader umbrella term for identity verification generally, while CDD specifically refers to the FATF-defined process that also includes understanding the purpose of the relationship and conducting ongoing monitoring, not just a one-time identity check at onboarding.
Why does identifying the beneficial owner matter more than identifying the named account holder?+
A named account holder can be a shell company or nominee acting for someone else, so without identifying the real person who ultimately owns or controls the account, a financial institution cannot actually assess the risk the relationship poses or detect layering schemes designed to obscure the true source of funds.
Related terms
- Beneficial Owner
- The natural person who ultimately owns or controls a legal entity or arrangement, as distinct from the nominee or registered owner. Anti-money-laundering...
- Beneficial Ownership
- The natural person(s) who ultimately own or control a legal entity or arrangement, or on whose behalf a transaction is conducted. FATF...
- Correspondent Banking
- A relationship in which one bank (the correspondent) provides services such as clearing and settlement to another bank (the respondent), allowing the...
- Enhanced Due Diligence (EDD)
- A heightened set of CDD measures applied to higher-risk customers or relationships, including PEPs, high-risk jurisdictions, and certain business types. EDD typically...
- FATF Recommendations
- The 40 international standards issued by the Financial Action Task Force that set out the measures countries should implement to prevent money...
- Mutual Evaluation Report (MER)
- An assessment of a country's compliance with the FATF Recommendations, conducted by FATF-style regional bodies or by FATF itself. Published publicly. Identifies...
- Politically Exposed Person (PEP)
- An individual who holds or has held a prominent public function, including senior government officials, judges, military officers, and their close family...
- Suspicious Activity Report (SAR)
- A disclosure filed with the financial intelligence unit when a reporting entity knows, suspects, or has reasonable grounds to suspect that a...
- Suspicious Activity Report (SAR) / STR
- A confidential report filed by a reporting entity to the national Financial Intelligence Unit when a transaction or pattern gives rise to...
- Transaction Monitoring System (TMS)
- An automated system that screens transaction data against a library of typologies and thresholds to generate alerts for potential money laundering. A...
Explained in these topics
- AML Compliance: KYC, CDD, and Suspicious Activity ReportingThe FATF-mandated set of measures requiring financial institutions to identify and verify customers and beneficial owners, understand the purpose and nature of...
- AML Compliance Audits and FATF Standards