Due diligence is a critical process of compliance that acts as a protection against financial crimes such as money laundering and financing terrorists. Due diligence requirements are increasing, and it is important that companies develop strategies that are specific to the specific needs of each region while meeting the international standard for best practices.
Due diligence may appear to be an interminable and lengthy task however it is an essential element of running a business. This process is typically divided into two broad areas: the purchase or sale of services or goods, and mergers and acquisitions. Due diligence in both of these cases is performed to ensure that businesses are properly informed before entering a transaction.
To do this, companies must review the background and reputation, as well as affiliations with potential third parties. This could include an internet search and questionnaires, or verification using independent sources like watch lists or business registries databases. A thorough analysis of the structure of management is also vital. Founders and other senior executives are likely to own an increased percentage of company shares, so it is important to understand their ownership levels. It is also worth checking whether these individuals have ever sold shares in the past.
KYC/Know Your Customer checks are more detailed for high-risk customers, as required by anti-money laundering laws and counter-terrorism financing rules. This is usually based on factors such as the jurisdiction they operate in and the type of transactions they make and the source of funds for the transactions. In addition an extensive review of AML policies and local market reputations through media sources is an excellent way to further refine risk assessments.