What Is Customer Due Diligence (CDD)? Definition, Requirements, Process & Checklist
September 20, 2024
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Customer Due Diligence (CDD) is a core component of modern Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) programs. It verifies identity, determines ownership, assesses customer risk, and ensures ongoing monitoring throughout the business lifecycle. As global regulations tighten, industries such as banking, fintech, insurance, marketplaces, and professional services increasingly rely on hybrid workflows combining automation with investigator oversight. Foundational rules like the FinCEN CDD Rule influence how verification and monitoring must be conducted across the United States.
Customer Due Diligence (CDD) refers to the structured process of identifying customers, verifying their information, and evaluating their risk profile. It supports broader frameworks such as the KYC vs KYB distinction, Customer Identity Verification, and Beneficial Ownership verification through UBO screening. CDD ensures organizations understand who they are onboarding and whether the relationship may introduce fraud, sanctions, or AML exposure.
Example:
A fintech onboarding a high-volume payments client discovers through CDD that a 30% beneficial owner was newly added to an OFAC sanctions list. Automated screening missed it, but manual review flagged the risk—preventing a costly regulatory issue.
CDD protects businesses from fraud, terrorist financing, sanctions violations, and identity misuse. It supports AML obligations alongside frameworks like AML Screening & Monitoring and Adverse Media Screening. Both banks and non-bank entities rely on CDD to maintain trusted relationships and satisfy regulatory and partner expectations.
CDD standards vary globally. FinCEN’s rules stress beneficial ownership; the EU’s AMLD6 expands liability and lowers UBO thresholds; APAC regulators emphasize transaction monitoring. Businesses with cross-border exposure should pair verification with tools like Global Business Verification to stay aligned with local requirements.
For escalation guidance, learn more in the CDD vs EDD guide.
CDD begins with collecting identity data, validating documents, and confirming beneficial ownership, often supported by business verification workflows. Customers and UBOs are screened for sanctions, PEPs, and adverse media using sources such as the Global Sanctions Background Check. Institutions then risk-rate the customer, decide whether to approve or escalate onboarding, and document findings for audits. Ongoing monitoring ensures profiles remain accurate and is supported by alerts from tools like Customer Risk Management.
Digital identity tools such as eIDV and API-linked registries further strengthen accuracy during onboarding.
Red flags include inconsistent identity data, unusual business models, opaque ownership structures, high-risk jurisdictions, reluctance to provide documents, unexplained transaction patterns, and significant negative media. These situations often require escalation to Enhanced Due Diligence and reference checks through resources such as Reputational Due Diligence.
Ongoing CDD includes periodic reviews, continuous sanctions and PEP rescreening, and transaction monitoring aligned with risk levels. When customer behavior changes or adverse media appears, institutions perform event-driven reviews, often leveraging workflows described in Continuous Monitoring for AML.
CDD also applies to business onboarding through KYB processes. This includes validating registration details, confirming directors, reviewing licenses, screening corporate ownership, and evaluating operational legitimacy. Tools like How to Run a Company Background Check and Business Partner Due Diligence help organizations verify business entities effectively.
Banks must follow strict CIP rules, maintain detailed records, and undergo regular exams. Non-bank entities—such as fintech platforms, marketplaces, lenders, legal firms, and real estate groups—use CDD to reduce fraud, avoid chargebacks, and maintain partner compliance standards. Industries engaging in high-volume onboarding often supplement CDD with Instant Searches vs Live Investigations for higher accuracy.
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A strong CDD policy defines verification standards, documentation requirements, risk scoring, escalation paths, monitoring frequency, and recordkeeping. Policies should reflect regulatory updates and internal risk assessments. Many institutions build policies using the structure found in the Ultimate Due Diligence Checklist.
CDD operations require document collection, identity verification, screening, false-positive management, and continuous monitoring. Automation helps, but human investigators remain critical—especially for complex ownership or cross-border structures. Hybrid workflows align with best practices outlined in International Due Diligence.
CDD verifies identity, assesses risk, and monitors customers to prevent money laundering, sanctions exposure, fraud, and financial crime.
It includes identity verification, beneficial ownership checks, screening, risk assessment, and continuous monitoring throughout the customer lifecycle.
Customer Identification (CIP), beneficial ownership verification, risk-based assessment, and ongoing monitoring.
It is a mandatory AML requirement that includes verifying identity, confirming beneficial owners, risk-rating customers, and monitoring accounts for suspicious activity.
KYC verifies identity at onboarding; CDD expands into risk assessment and ongoing monitoring across the entire customer relationship.
Triggers include PEP status, high-risk jurisdictions, complex ownership, adverse media, and unusual behavior patterns.
Organizations collect identification documents, ownership details, expected activity, source-of-funds data, and screening results.
It includes periodic reviews, sanctions/PEP rescreening, and monitoring for unusual patterns to keep risk profiles updated.
BusinessScreen.com supports teams with investigator-verified identity checks, beneficial ownership verification, global sanctions screening, adverse media intelligence, litigation checks, and continuous monitoring alerts. These solutions improve onboarding accuracy and risk detection while supporting compliance teams across regulated industries.
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Strengthen your CDD workflows with investigator-supported verification, faster onboarding, and continuous monitoring powered by human intelligence. Explore solutions or contact us to get started today.
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