Risk Factors for Due Diligence

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Due diligence is a critical process of compliance that acts as a defense against financial crimes, such as money laundering and terrorist financing. Due diligence requirements are growing and it is crucial to develop strategies that are adapted to the unique dynamics of each region while meeting international best practices.

While it may appear to be an exhausting and time-consuming job conducting due diligence is a critical part of business. This process is usually divided into two main areas: the purchase or sale of services and goods, and mergers and acquisitions. Due diligence in both instances is performed to ensure that businesses are completely aware prior to entering into a deal.

To accomplish this, businesses must review the background, reputation and affiliations of potential third-party companies. This can include the use of a search engine and questionnaires, or verification through independent sources such as watch lists or business registries databases. Also, a thorough analysis of management structures is a crucial analysis. It is important to know the ownership percentages of senior executives as well as founders. It is also worth checking whether these individuals have ever sold shares in the past.

High risk customers require more thorough KYC/Know Your Customer (KYC) checks, which is a requirement of anti-money laundering and countering the financing of terrorists regulations. This is based on a variety of factors, including the jurisdiction in which they operate as well as the type and quantity of transactions that they conduct, and the source of the money used in those transactions. A thorough analysis of AML policies and local market reputations via media sources can also assist in the development of risk assessments.