Due diligence is a vital process of compliance that acts as a protection against financial crimes, such as money laundering and financing terrorists. As EDD requirements continue to increase and become more stringent, it is essential that companies develop strategies that are tailored to the unique characteristics of each region, while also ensuring they are in line with global best practices and industry standards.
While it may seem difficult and time-consuming doing due diligence can be a time-consuming and difficult task, it’s essential to the success of any business. This process is typically split into two broad areas such as the purchase or sale of services or goods, and mergers and acquisitions. Due diligence in both cases is performed to ensure that businesses are well informed prior to entering into a transaction.
Companies must investigate the background, reputation, and affiliations of third-party organizations. This may include a study of results from internet searches as well as questionnaires and verification via independent sources such as business registries and watch list databases. Additionally, a careful analysis of management structures is an important factor to consider. Founders and other senior executives tend to hold more company shares, therefore it is important to understand their ownership levels. Lastly it is important to determine whether they have been selling shares recently.
Customers with high risk requirements require more thorough KYC/Know Your Customer (KYC) checks, a requirement under anti-money laundering and countering financing of terrorists regulations. This is usually dependent on factors like the jurisdiction of their operations and the type of transaction they conduct and the source of the funds used for those transactions. In addition an extensive review of AML policies and local market reputation via media sources is a good way to improve risk assessments.
