Enhanced Due Diligence (“EDD”) is a key component of anti-money laundering (“AML”) frameworks in Malta. It forms part of the risk-based approach required under the Prevention of Money Laundering and Funding of Terrorism Regulations (“PMLFTR”) and the Financial Intelligence Analysis Unit (“FIAU”) Implementing Procedures.
For Company Service Providers (“CSPs”), EDD is applied where a business relationship or transaction presents a higher level of risk.
When Is Enhanced Due Diligence Required?
EDD is typically required in situations where risk factors are elevated. These may include:
- Clients linked to high-risk or non-cooperative jurisdictions
- Complex ownership structures that reduce transparency
- Politically Exposed Persons (“PEPs”)
- Unusual or high-value transactions without clear economic rationale
- Business models involving higher exposure to cross-border activity
The identification of such factors does not imply wrongdoing. However, it requires additional scrutiny to ensure compliance with AML obligations.
What Does EDD Involve in Practice?
EDD measures go beyond standard Customer Due Diligence (“CDD”). In practice, CSPs may:
- Obtain additional information on the client’s source of wealth and source of funds
- Conduct more in-depth verification of beneficial ownership
- Seek a clearer understanding of the purpose and intended nature of the relationship
- Increase the frequency and depth of ongoing monitoring
These measures are designed to build a more comprehensive risk profile.
The Role of the Risk-Based Approach
Under Malta’s AML framework, the application of EDD must be proportionate. Not all clients require the same level of scrutiny.
The risk-based approach ensures that higher-risk relationships receive enhanced attention, while lower-risk relationships are managed more efficiently.
Ongoing Monitoring and Review
EDD is not a one-time exercise. Where higher risk is identified, CSPs are required to maintain enhanced monitoring throughout the relationship.
This includes reviewing transactions, updating client information, and reassessing risk as circumstances evolve.
Conclusion
Enhanced Due Diligence is a critical safeguard within Malta’s AML framework. By applying EDD measures appropriately, CSPs help mitigate financial crime risks while maintaining compliance with regulatory expectations.
