Risk Factors for Due Diligence
Due diligence is a vital method of ensuring compliance. It protects against financial crimes like money laundering and terrorist financing. As EDD requirements continue to grow and grow, it’s crucial that organizations create strategies that are nimble and able to address the unique characteristics of each region, while also ensuring they are in line with global best practices and industry standards.
While it may appear to be difficult and time-consuming conducting due diligence is an essential aspect of business. The process is usually split into two main areas such as the purchase or sale of goods and services and mergers and acquisitions. Due diligence in both instances is conducted to ensure that businesses are well aware prior to entering into a deal.
Businesses should investigate the background, reputation, and affiliations of third parties. This can be done through a review of results from internet searches or questionnaires, as well as verification through independent sources like watch lists and business registries databases. In addition, a thorough analysis of management structures is a crucial consideration. It is essential to know the ownership percentages of senior executives and founders. It is also worth determining whether they have sold shares in the past.
High-risk customers require more detailed KYC/Know Your Customer (KYC) checks, a requirement of anti-money laundering and countering financing of terrorist laws. This is often dependent on factors like the jurisdiction of their operations as well as the type of transactions they make and the source of the funds used for those transactions. In addition reviewing the AML policies and local market reputation via media sources is a great method of further enhancing risk assessments.