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Ongoing Due Diligence

Definition

Ongoing due diligence refers to the continuous, risk-based process through which financial institutions and other regulated entities monitor customer relationships, transactions, behavior, and risk profiles throughout the lifecycle of an account.

Unlike initial KYC, ongoing due diligence ensures that customer activity remains consistent with the institution’s understanding of the customer, their business model, source of funds, and risk classification.

It is a core AML/CFT requirement designed to detect changes that may indicate elevated risk, suspicious activity, or the presence of money laundering or terrorist-financing typologies.

Ongoing due diligence applies to all customer segments but becomes more intensive for high-risk clients, politically exposed persons (PEPs), cross-border transactions, complex structures, and entities operating in high-risk jurisdictions.

Explanation

Ongoing due diligence (ODD) operates on the principle that customer risk is never static.

Even low-risk clients can exhibit behavioural shifts, new business activities, or transaction patterns that warrant review.

ODD bridges the gap between initial onboarding and subsequent monitoring by ensuring that institutions maintain updated customer information, validate the legitimacy of ongoing activity, and respond appropriately to emerging risk indicators.

The process generally includes periodic reviews, continuous transaction monitoring, enhanced scrutiny for high-risk relationships, and timely refresh of customer information such as beneficial ownership, purpose of account, and source of funds.

ODD is essential for detecting hidden risks that may only emerge over time, including abrupt changes in transaction velocity, use of new channels, or connections to adverse media.

Financial institutions must adopt a risk-based and intelligence-driven approach to ODD, integrating digital tools, analytics, typology libraries, and automated monitoring frameworks to reduce false positives and strengthen detection accuracy.

Ongoing Due Diligence in AML/CFT Frameworks

ODD is embedded across various AML/CFT requirements and directly influences customer due diligence (CDD), enhanced due diligence (EDD), transaction monitoring, sanctions screening, and suspicious transaction reporting.

Effective ODD ensures that institutions maintain current knowledge of customer risk exposure and can identify deviations from expected behaviour.

Key AML/CFT linkages include:

  • Continuous monitoring of transactions to assess whether activity aligns with the institution’s knowledge of the customer.
  • Updating KYC information, including beneficial ownership, business operations, and source of funds.
  • Applying enhanced measures to high-risk customers or relationships involving PEPs or high-risk jurisdictions.
  • Assessing unusual patterns for potential STR/SAR filing obligations.
  • Supporting regulatory requirements for customer information accuracy and transparency.
  • Ensuring that risk-scoring systems reflect real-time changes in customer profiles.

Regulators expect ongoing due diligence to operate proportionately to risk and to include both automated and manual components.

Key Components of Ongoing Due Diligence

Periodic Customer Reviews

Institutions must perform scheduled reviews of customer profiles, with frequency aligned to risk ratings.

Reviews typically reassess:

  • Customer identity information and documentation.
  • Beneficial ownership and control structures.
  • Source of funds or wealth, where relevant.
  • Business operations and activity patterns.
  • Adverse media or sanctions status.

Continuous Transaction Monitoring

A core element of ODD involves observing transactional behaviour to detect anomalies and red flags. T

his includes:

  • Threshold-based and behavioural monitoring.
  • Detection of unusual transaction velocity or volume.
  • Identification of deviations from known customer profiles.
  • Monitoring cross-border flows involving high-risk jurisdictions.
  • Application of typology-driven scenarios for ML/TF detection.

Enhanced Due Diligence Triggers

Certain events automatically warrant deeper investigation, such as:

  • Sudden increase in account activity without a clear economic rationale.
  • Use of complex structures, intermediaries, or opaque ownership.
  • Unusually large cash deposits or high-risk digital asset transfers.
  • Negative news, legal actions, or sanctions exposure.
  • Patterns suggesting structuring, layering, or misuse of accounts.

Updating Customer Information

Institutions must maintain accurate, current customer records.

Updates may be triggered by:

  • Material changes in customer behaviour.
  • Regulatory instructions or internal policy changes.
  • Notifications from the customer regarding business or ownership.
  • Periodic review cycles for risk-based refresh.

Risks and Red Flags Associated With Weak Ongoing Due Diligence

Inadequate ODD creates systemic vulnerabilities that criminals can exploit. Major risks include:

  • Outdated KYC information that masks emerging risks.
  • Undetected adverse media or sanctions exposure.
  • Inability to identify rapid shifts in transactional patterns.
  • Failure to escalate high-risk behaviour or potential STR obligations.
  • Overreliance on initial onboarding checks without dynamic monitoring.

Typical red flags include:

  • Transactions inconsistent with the customer profile or declared business.
  • Significant inbound or outbound flows involving high-risk countries.
  • Multiple accounts showing coordinated or circular movements.
  • Use of third parties, intermediaries, or nominee structures.
  • Unexplained changes in customer ownership or business model.

Common Methods & Techniques for Misuse or Evasion

Criminals often exploit gaps in ongoing due diligence through:

  • Gradual escalation of activity to avoid sudden triggering of alerts.
  • Use of dormant accounts activated for layering or movement of illicit funds.
  • Structuring transactions to avoid threshold reporting.
  • Misuse of digital channels such as unregulated wallets, fintech platforms, or rapid payment rails.
  • Obscuring beneficial ownership through complex corporate arrangements.
  • Cross-border transfers routed through high-opacity jurisdictions.

Examples of Ongoing Due Diligence Scenarios

Dormant Account Reactivation

A previously inactive corporate account suddenly begins receiving high-value cross-border transfers.

ODD identifies the behavioural shift, prompting EDD and eventual STR filing due to lack of legitimate economic justification.

Adverse Media Trigger

A customer with moderate risk classification appears in news reports linking them to corruption charges.

ODD processes escalate the customer to high-risk status and initiate enhanced monitoring and review.

Sudden Ownership Change

A small trading company updates its ownership structure to include offshore entities.

ODD triggers a review that uncovers discrepancies in beneficial ownership and unusual transaction patterns.

Digital Asset Typology Detection

ODD identifies repeated fiat-to-crypto conversions followed by transfers to high-risk virtual asset service providers (VASPs), prompting additional scrutiny and potential reporting.

Impact on Financial Institutions

Effective ongoing due diligence strengthens institutional resilience and reduces AML exposure.

Conversely, weak ODD can generate:

  • Regulatory penalties for outdated or inaccurate customer information.
  • Elevated financial crime exposure and STR backlogs.
  • Reputational damage due to association with illicit actors.
  • Loss of correspondent banking relationships.
  • Operational inefficiencies and increased compliance costs.

Institutions with robust ODD frameworks demonstrate stronger risk management maturity and greater confidence among regulators.

Challenges in Detecting & Preventing ML/TF Through ODD

Despite technological advancements, several structural challenges persist:

  • High transaction volumes that complicate behavioural analysis.
  • Limited visibility into ultimate beneficial ownership, particularly across borders.
  • Data quality issues and fragmented customer records.
  • Evolving ML/TF typologies requiring constant tuning of monitoring systems.
  • Difficulty balancing false positives with detection sensitivity.
  • Regulatory inconsistencies across jurisdictions.

Addressing these challenges requires risk-based segmentation, analytics-driven detection, and continuous improvement of monitoring frameworks.

Regulatory Oversight & Governance Expectations

Regulators mandate comprehensive governance structures supporting ODD, including:

  • Defined policies outlining risk-based review cycles.
  • Clear escalation pathways for suspicious activity.
  • Capacity to obtain and validate updated customer information.
  • Board and senior management oversight of AML controls.
  • Adequate staffing, training, and technological investment.
  • Alignment with FATF Recommendations on CDD, EDD, and monitoring obligations.

Supervisory bodies consider failure to maintain effective ODD a critical deficiency.

Importance of Addressing Ongoing Due Diligence in AML/CFT Compliance

Ongoing due diligence is central to maintaining a secure and compliant financial ecosystem.

Strong ODD programmes enable institutions to:

  • Detect and deter financial crime proactively.
  • Maintain accurate customer risk profiles that evolve with behaviour.
  • Meet regulatory expectations for transparency and ongoing monitoring.
  • Strengthen internal governance and risk management systems.
  • Support intelligence-led AML frameworks through dynamic risk updating.

With increasingly complex financial products, faster payment channels, and globalised transaction flows, effective ODD remains a foundational AML/CFT defence.

Related Terms

  • Customer Due Diligence (CDD)
  • Enhanced Due Diligence (EDD)
  • Transaction Monitoring
  • Beneficial Ownership
  • Risk-Based Approach
  • Suspicious Transaction Reporting

References

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