Risk Factors for Due Diligence
Due diligence is an essential method of ensuring compliance. It safeguards against financial crimes, such as money laundering and terrorist funding. Due diligence requirements are growing, and it is important to create strategies that are tailored to the specific dynamics of each region while meeting global best practices.
Although it might seem like to be a time-consuming and laborious task, doing due diligence is an essential aspect of business. The process usually covers two major areas: the sale or purchase of services and goods and mergers and acquisitions. Due diligence in both situations is conducted to ensure that businesses are completely informed before entering a transaction.
Businesses should investigate the background of the company, its reputation, and affiliations with third parties. This can be done through a review of results from internet searches such as questionnaires, verification and independent sources like watch lists and business registry databases. A careful analysis of the structure of management is also essential. It is important to know the ownership percentages of senior executives as well as founders. It is also worth determining whether these individuals have ever sold shares in the past.
KYC/Know Your Customer checks are more thorough for customers with high risk, as required by anti-money laundering laws and counter-terrorism financing regulations. This is based on factors such as the state in which they operate, the type and amount of transactions they conduct, and the source of funds used to fund those transactions. Additionally an extensive review of AML policies and local market reputation through media sources is a great method to further refine risk assessments.