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Due diligence is an essential compliance procedure that acts as a shield against financial crimes like money laundering and terrorist financing. Due diligence requirements are increasing, and it is important that organizations develop strategies that are specifically tailored to the specific needs of each location while ensuring global best practices.
While it may seem an exhausting and time-consuming job doing due diligence can be a time-consuming and difficult task, it’s essential to business. The process usually covers two major areas: the sale or purchase of services and goods, as well as mergers or acquisitions. Due diligence in both instances is conducted to ensure that businesses are fully informed prior to entering into any transaction.
Businesses should investigate the background of the company, its reputation, and affiliations of third parties. This can include a review of internet search results such as questionnaires, verification and independent sources like watch lists and business registry databases. Also, a thorough analysis of management structures is a crucial consideration. It is important to know the ownership percentages of senior executives as well as founders. Also it is important to determine whether these individuals have recently sold shares.
KYC/Know Your Customer checks are more thorough for customers with high risk as required by anti-money laundering laws and counter-terrorism finance regulations. This is based on factors such as the jurisdiction in which they operate as well as the type and volume of transactions they make, and the source of the funds used to fund those transactions. A thorough review of AML policy and local market reputation via media sources can also aid in determining risk assessments.