Due diligence is a crucial compliance process that acts as a deterrent against financial crimes like money laundering and financing of terrorists. As EDD requirements continue to grow it is crucial that businesses create strategies that are nimble and able to address the unique dynamics of each region, while also ensuring they are in line with global best practices and industry standards.
While it may appear to be a laborious and time-consuming task doing due diligence can be a time-consuming and difficult task, it’s a critical part of business. It typically covers two main areas: the sale or purchase of services and goods, and mergers and acquisitions. In both instances due diligence is carried out to ensure that businesses have all the necessary information before entering into a transaction.
To do this, businesses must look into the background and reputation, as well as affiliations with potential third parties. This could include online searches or questionnaires as well as verification through independent sources like business registries or watchlist databases. In addition, a thorough analysis of management structures is a crucial consideration. Founders and other executives are likely to own more company shares, therefore it is important to understand their levels of ownership. Also it is important to determine whether these individuals have been selling shares recently.
KYC/Know Your Customer checks are more thorough for high-risk clients, as required by anti-money laundering laws and counter-terrorism finance regulations. This is based on factors like the country where they operate, the type and amount of transactions that they conduct and the source of the funds used for those transactions. A thorough analysis of AML policies and local market reputation through media sources can also help refine risk assessments.