Many methods employed by criminals to launder money or finance terrorism involve the use of the financial system to transfer funds. Financial institutions, particularly banks, are most vulnerable to abuse for that purpose. To protect themselves, it is essential for financial institutions to have adequate controls and procedures in place that enable them to know the person with whom they are dealing. Adequate due diligence on new and existing customers is a key part of these controls.

The application of strict Customer Due Diligence (CDD) by financial institutions and a high degree of transparency are crucial to effectively combat money laundering and the financing of terrorism. CDD must be applied upon the establishment of a business relationship or in preparation for specific cash transactions exceeding a certain amount. CDD must also be applied whenever financial institutions suspect money laundering or terrorist financing activities.

The basic steps of CDD measures include the appropriate identification of a customer and/or beneficial owner, the verification of the identity of the customer or beneficial owner, as well as the collection of information on the customer's purpose and the nature of the business relationship.

International standards on CDD have been set by both the Basel Committee on Banking Supervision (Basel Committee) and the Financial Action Task Force (FATF).