Risk Factors for Due Diligence

Due diligence is an essential process of compliance that acts as a shield against financial crimes such as money laundering and terrorist financing. As EDD requirements continue to grow it is crucial that businesses come up with strategies that are flexible and address the unique dynamics of each region, while ensuring they are in line with global best practices and industry standards.

Due diligence might seem like an interminable and lengthy task however, it is an essential element of running a business. The process is usually split into two major areas which are the sale or purchase of data room index services and goods, and mergers and acquisitions. In both cases due diligence is carried out to ensure that companies have all the information they need before entering into a transaction.

Businesses should investigate the background and reputation of, as well as affiliations of third party. This could include a review of search results on the internet as well as questionnaires and verification via independent sources such as watch lists and business registries databases. Additionally, a careful analysis of the management structure is a vital aspect to take into consideration. It is important to understand the ownership percentages of senior executives as well as founders. Also consider whether these individuals have recently sold shares.

High-risk customers require more thorough KYC/Know Your Customer (KYC) checks, which is a requirement of anti-money laundering and combating the financing of terrorist laws. This is often dependent on factors such as the jurisdiction in which they operate and the type of transactions they conduct, and the source of funds for the transactions. In addition an in-depth review of AML policies and local market reputation through media sources is a good method of further enhancing risk assessments.