Definition:
Enhanced Due Diligence (EDD) is an advanced level of scrutiny applied to high-risk customers or transactions to mitigate financial crime risks. It includes additional identity verification, deeper transaction analysis, and ongoing monitoring.

Contextual Explanation:
EDD is required for high-risk clients, including Politically Exposed Persons (PEPs), businesses operating in high-risk industries, and transactions involving high-risk jurisdictions. Financial institutions and PSPs must implement EDD measures when standard Customer Due Diligence (CDD) is insufficient.

Why It Matters:
EDD helps prevent money laundering, fraud, and terrorism financing by ensuring more rigorous checks on high-risk activities. Failure to apply EDD where required can result in severe regulatory penalties.

Example:
A Canadian financial institution processing payments for a foreign MSB must conduct EDD, including verifying the Ultimate Beneficial Owners (UBOs) and performing enhanced transaction monitoring.