Due diligence is an essential procedure for ensuring compliance. It protects against financial crimes like money laundering and terrorist financing. Due diligence requirements are increasing and it is vital that companies develop strategies that are adapted to the specific requirements of each region, while adhering to the global standard of best practices.
Due diligence may appear to be an arduous and time-consuming task however, it is an important part of doing business. It typically covers two main areas: sale or purchase of services or goods, and mergers or acquisitions. Due diligence in both cases is conducted to ensure that businesses are properly informed prior to entering into a transaction.
Businesses must check the background of the company, its reputation, and affiliations of third party. This could include online searches or questionnaires, as well as verification through independent sources such as business registers or watch list databases. A thorough analysis of the structure of management is also important. The founders and other top executives tend to hold a greater percentage of company shares, so it is crucial to determine their ownership levels. Lastly you should consider whether they have been selling shares recently.
Customers at risk of being a victim of fraud require more thorough KYC/Know Your Customer (KYC) checks, which is required by combating money laundering and financing of terrorist laws. This is usually based on factors such as the jurisdiction of their operations and the type of transactions they conduct, and the source of the funds used for those transactions. A thorough review of AML policies and local market reputations via media sources can assist in the development of risk assessments.
