Sanctions Evasion Reference

Customer due diligence

The ongoing process of understanding a customer's identity, ownership, expected activity and risk, and checking that actual activity remains consistent with it.

also known as

CDD

reviewed

2026-08-20

Due diligence is continuous rather than a gate passed at onboarding. The FATF Recommendations require firms to keep information current and to scrutinise transactions to ensure they are consistent with what is known about the customer.

That comparative standard — activity against expectation — is where most published indicators live. A transaction is rarely suspicious in isolation; it is suspicious because the customer described a different business.

Where this term is used

  • How is correspondent banking used to evade sanctions? — Using a chain of banks that each know only their own customer, so that a payment for a restricted party reaches a currency it could not access directly, without any bank in the chain seeing the whole transaction.
  • What is a front company? — A front company is a business that trades normally but exists largely to hide another party's involvement in its transactions. The real activity is the cover; the concealed party is the point.
  • What are third-country bank accounts and how are they used? — Holding accounts in a jurisdiction unconnected to the restricted party, the goods or the contract, so that payments reach and leave the restricted economy without ever appearing to touch it.

Related terms

  • Know your customer — The obligation on a regulated firm to identify its customer, verify that identity, and understand the purpose of the relationship before providing services.
  • Enhanced due diligence — Additional scrutiny applied where risk is assessed as higher, including deeper enquiry into source of funds, ownership and the purpose of specific transactions.
  • Red-flag indicator — A published, attributable observation that a transaction or relationship warrants further enquiry, drawn from patterns seen in past cases.

Sources

  1. The FATF Recommendations. Financial Action Task Force, 2025.
  2. Correspondent banking principles and guidance. The Wolfsberg Group, 2022.

All glossary terms