Basic Overview of Enhanced Due Diligence
Meaning: Enhanced customer due diligence, often called enhanced CDD, is the set of extra checks, additional information collection, and additional verification you apply when money laundering, terrorism financing, or proliferation financing risk is higher.
Why it matters: Enhanced CDD helps you decide whether activity is suspicious and whether a suspicious matter report may be needed, while also managing the ongoing risk.
Where it appears in Tranche 2: Higher risk property matters, complex company or trust structures, politically exposed persons, unusual third party payments, and clients linked to higher risk jurisdictions.
Reform alignment: AUSTRAC’s reforms guidance frames enhanced CDD as targeted and proportionate to ML, TF and PF risk, and links it directly to your AML and CTF policies.
Enhanced customer due diligence and your AML and CTF program
AUSTRAC explains that Part A of an AML and CTF program must include an enhanced customer due diligence program that documents the actions you take when the money laundering or terrorism financing risk is high. AUSTRAC also states that enhanced customer due diligence involves carrying out extra checks on a customer’s identification, collecting additional information, and doing additional verification.
Under the reforms guidance, AUSTRAC describes enhanced CDD as a key tool to help you identify, assess, manage, and mitigate a customer’s money laundering, terrorism financing, and proliferation financing risks, and stresses that the measures should be targeted to the customer’s specific risks and proportionate to the risk level.
For SEO, this is the heart of the topic. Enhanced customer due diligence is not a one size fits all checklist. It is a risk based escalation framework that your staff can apply consistently.
When you must apply enhanced CDD
AUSTRAC’s current guidance describes situations that typically require enhanced customer due diligence, including where your risk based systems and controls determine risk is high, where a customer or beneficial owner is a foreign politically exposed person, where suspicious behaviour may lead to a suspicious matter report, and where a transaction involves a person or company linked to a prescribed foreign country.
AUSTRAC’s reforms guidance explains that enhanced CDD must be applied in specific circumstances and provides structured guidance on when and how to apply it, with a clear focus on ML, TF and PF risk.
For Tranche 2 entities, a practical framing is this. You apply enhanced CDD when the client, the transaction, the funding, or the structure creates risk that cannot be comfortably managed with standard customer due diligence alone.
Enhanced CDD measures you can apply
AUSTRAC’s existing guidance provides a practical definition of enhanced CDD measures, focusing on three core actions.
- Extra checks on identification.
- Collecting additional information.
- Additional verification
AUSTRAC’s reforms guidance expands this into a more outcomes focused approach, emphasising that the measures must be targeted and proportionate, and that findings should drive risk decisions and risk treatment.
It is also useful to align your thinking to international standards. FATF payment transparency and customer due diligence standards emphasise a risk based approach where higher risk scenarios require enhanced measures. For value transfers, FATF expects required originator and beneficiary information and monitoring for missing information. This supports enhanced scrutiny where payment information is incomplete or inconsistent with the customer story.
Practical enhanced CDD examples for Tranche 2 sectors
Example 1: Property purchase funded by third parties
Your customer is the buyer, but the deposit comes from an unrelated company and the explanation is vague. Enhanced CDD could include verifying the relationship between the buyer and the payer, obtaining stronger source of funds evidence, and recording a clear funding narrative.
Example 2: Complex trust or layered company
A customer requests help establishing or restructuring entities with multiple layers and offshore links. Enhanced CDD could include deeper beneficial ownership work, understanding the purpose of the structure, and verifying controllers who ultimately direct decisions.
Example 3: High risk customer profile
Screening indicates a politically exposed person match or other high risk indicators. Enhanced CDD should focus on source of wealth, source of funds, and senior management approval where your program requires it.
Example 4: Unusual urgency and secrecy
The customer pushes for speed, refuses to share documents, or uses inconsistent explanations. Enhanced CDD becomes the point where you decide whether the relationship sits outside your risk appetite, and whether a suspicious matter report should be considered.
Best practice for implementing enhanced CDD in Tranche 2 businesses
- Write enhanced CDD triggers in plain English. AUSTRAC expects proactive efforts and realistic plans, not legal language that staff cannot apply.
- Create an enhanced CDD pack. Have a standard set of additional questions and evidence prompts, then tailor per case. This helps consistency and reduces decision fatigue.
- Make decisions explicit. Enhanced CDD should end with a decision: proceed, proceed with conditions, decline, or escalate to suspicious matter reporting assessment. AUSTRAC notes enhanced CDD can help you decide whether a suspicious matter should be reported.
- Link enhanced CDD to ongoing monitoring. AUSTRAC explains that due diligence measures may change over time as a customer’s risk profile changes. Enhanced CDD is not always a one off event.
- Prepare for the 2026 start date. AUSTRAC expects Tranche 2 entities to have trained staff and be ready to report suspicious matters by 1 July 2026. Enhanced CDD is one of the most important practical workflows to test before go live.
Common challenges
- Enhanced CDD is treated as document collection without analysis.
- Staff apply enhanced CDD inconsistently, especially on third party payments and complex structures.
- Files lack a clear narrative that links the evidence to the decision.
- Firms escalate to a suspicious matter report decision too late, often at settlement stage, rather than when the risk signals first appear.
Wrapping Up Enhanced Due Diligence Requirements
Enhanced customer due diligence is where a risk based approach becomes operational. For Tranche 2 entities, it is also one of the clearest ways to demonstrate that you are not just collecting documents, you are actively identifying, assessing, and mitigating money laundering, terrorism financing, and proliferation financing risk in real client matters.
“Bookmakers sit at a natural convergence point for cash, speed and anonymity. AUSTRAC’s focus reflects the reality that wagering platforms can be misused as value transfer mechanisms if risk controls are not actively applied.”
Your Questions on Enhanced Due Diligence Answered
Is enhanced CDD the same as standard CDD
No. Enhanced CDD means extra checks, additional information, and additional verification because the risk is higher.
Does filing a suspicious matter report replace enhanced CDD
AUSTRAC states that submitting a suspicious matter report does not manage the ongoing risk on its own and that you also need to apply enhanced CDD where appropriate.
How should enhanced CDD look under the reforms
AUSTRAC’s reforms guidance emphasises that enhanced CDD measures must be targeted to the customer’s ML, TF and PF risks and proportionate to the risk level.
