Definition
Customer Due Diligence (CDD) is the risk-based process of establishing who a customer is and assessing the business relationship. In its regulatory sense, CDD supports the prevention of money laundering and terrorist financing: it covers customer identification and verification, identifying beneficial owners and taking reasonable measures to verify their identities, understanding the purpose and intended nature of the relationship, and ongoing scrutiny. (FATF, Recommendation 10)
The underlying discipline also matters to manufacturers, trading businesses and service providers seeking to prevent fraud. Checking that a customer and its representatives are genuine, and that a proposed transaction makes business sense, can reduce exposure to deception. This broader commercial practice should be distinguished from the specific CDD obligations imposed by law.
Context
The Financial Action Task Force (FATF) sets the international framework for regulatory CDD. Its scope extends beyond financial institutions to designated non-financial businesses and professions, including real estate agents and trust and company service providers when undertaking specified activities. Applicable law determines the actual obligations. (FATF, Recommendations 10 and 22)
CDD connects onboarding information with the assessment of subsequent activity. Records need to remain relevant as ownership, business operations or transaction patterns change. Know Your Customer (KYC) is a related term whose scope varies in practice; CDD here includes both initial checks and ongoing due diligence. (Basel Committee on Banking Supervision, sections II.3–II.5)
Within AML/CFT frameworks, higher risks call for Enhanced Due Diligence (EDD). Simplified Due Diligence (SDD) depends on the applicable conditions and is unavailable under the FATF standard where money laundering or terrorist financing is suspected. (FATF, Interpretive Note to Recommendation 10)
Our international CDD reference guide explores this regulatory AML/CFT context through selected standards, legislation and supervisory guidance across eight jurisdictions.
Meaning
Fraud prevention beyond financial services. Fictitious businesses, hijacked corporate identities and fabricated trade references can expose ordinary commercial businesses to fraud. Independent checks on identity and references help assess these risks. (Police.uk, Corporate identity and long/short firm fraud) A practical implication is to examine, where relevant, a representative’s authority, the commercial purpose of a transaction and unusual delivery, payment or refund instructions. Customer checks complement internal controls, including independent approval of unusual transactions.
What customer checks can establish. Documents may be false or outdated, and a customer’s conduct can change after onboarding. A database match or elevated risk rating is a reason to examine the underlying information, not proof of criminal activity. Creditworthiness and integrity also require distinct judgements: a business can default without committing fraud, while a reliable payment history does not rule out later deception.
Proportionality and de-risking. Excluding whole categories of customers to avoid assessing and managing their risks conflicts with the FATF’s risk-based approach. Disproportionate demands can deny legitimate customers access to financial services. (FATF, Financial Inclusion Guidance, paragraph 14 and section 1.5) The FATF definition of a politically exposed person (PEP) centres on a prominent public function. Expressing political criticism alone does not make someone a PEP. PEP status does not imply criminal conduct, and the FATF rejects refusal of a relationship solely on that basis. (FATF, PEP Guidance, paragraphs 1–2 and 10–13)
Debanking and possible misuse. Refusing or ending a banking relationship may be legally required or permitted on contractual or commercial grounds; a criminal conviction is not a universal prerequisite. Where required CDD cannot be completed, the FATF standard provides for refusal or termination of the relationship. (FATF, Recommendation 10) The lawfulness of a particular decision depends on the jurisdiction, account type, contract and circumstances. The UK Financial Ombudsman Service illustrates this individual assessment in its approach to closure complaints. (Financial Ombudsman Service, Bank account closures)
Customer checks can be misused if “compliance” becomes a pretext for excluding a person or business for unrelated reasons, such as finding their views unwelcome. Whether this has happened requires evidence; closure alone does not establish abuse. Sound practice calls for reliable, current information, documented reasons, proportionate measures and ways to correct errors and seek review. Applicable data protection and anti-discrimination rules, as well as any legal restrictions on disclosure, must be taken into account.
Example
Illustrative scenario, based on the pattern of long firm fraud: A wholesaler supplies a new business customer that promptly settles several small invoices. The customer then places a much larger order on credit and requests delivery to a different address at short notice.
Before releasing the goods, the wholesaler checks the purchaser’s authority, verifies the delivery arrangements through independently confirmed contact details and reassesses the order against the credit limit. Depending on the findings, it may seek additional security or adjust the delivery terms.
Past payments provide useful context, but do not establish that the new order is genuine. The changes warrant enquiries while leaving room for a legitimate explanation. (Police.uk, Long and short firm fraud)
Sources
Suggested citation
wirtschaftsforensik.ch Editorial Team: "Customer Due Diligence (CDD)", in: Glossary, wirtschaftsforensik.ch, https://wirtschaftsforensik.ch/glossar/customer-due-diligence-cdd/, accessed November 10, 2026.