Due diligence is an essential process of compliance that acts as a protection against financial crimes like money laundering and financing terrorists. Due diligence requirements are increasing, and it is important that organizations develop strategies that are adapted to the specific needs of each region while meeting global best practices.
While it may appear to be to be a time-consuming and laborious task, doing due diligence is an essential aspect of business. This process typically involves two main areas: the purchase or sale of goods and services, and mergers or acquisitions. In both cases due diligence is carried out to ensure that businesses have all the information they need prior to committing to a transaction.
Businesses must check the background and reputation of, as well as affiliations of third-party organizations. This could involve an internet search or questionnaires, as well as verification using independent sources such as business registries or watchlist databases. A thorough analysis of the structure of management is also vital. Founders and other senior executives tend to hold more company shares, so it is crucial to know their levels of ownership. Lastly you should consider whether they have recently sold shares.
High-risk customers require more detailed KYC/Know Your Customer (KYC) checks, a requirement under anti-money laundering and countering the financing of terrorism laws. This is based on factors such as the state in which they operate as well as the type and volume of transactions they conduct, and the source of funds used for those transactions. Additionally, a thorough review of AML policies and the local market’s reputation through media sources is a great method to further refine risk assessments.
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