The business world requires financial bonds for growth, but it is completely exposed to risk. Onboarding the company without verification leads to fraud risk and threats. If the counterparty is not compliant with international standard laws, it may lead the business to sanctions. The business requires third party due diligence to ensure smooth onboarding with financial security. The business due diligence requirements vary according to the relevant country’s jurisdiction. The investigation of third parties helps validate legitimacy and financing. In this read, let’s explore the significance of business screening for streamlined onboarding.
What is Third Party Due Diligence?
Third party due diligence is the detailed inspection of the company to assess its legitimacy. Each country has its parent registry in which all the country-specific businesses are registered. While onboarding the company, it is necessary for business partners to verify that the company is by parent registry. The company’s data and documentation are gathered to screen against public databases. Data validations ensure the company’s legitimacy and identification of red flags. The business people’s data is also collected and screened to validate each shareholder’s legal status. The financial performance assessment of the company reduces the risks of fraud in the future.
Third Party Due Diligence Checklist
To verify third party, the following business information is required:
- The name, address, registration number, registration date, website, contact number, and email address are collected.
- The documents, including the proof of address, article of incorporation, bank statement, cashflow statement, and tax record are collected.
- The shareholding details, including their name, contact number, designation, percentage, and number of shares, are required.
- The information on business activities is collected and analysed to check the company’s legitimacy and operations.
Third Party Due Diligence Solutions
The complete third-party due diligence solutions are discussed below:
- Data Collection
Business information collection is the primary step in third-party due diligence. It includes the collection of company name, type, address, registration number, registration date, tax ID, and other details. The collected data is checked and cross-referenced against the public databases.
- Document Collection and Screening
The documents of the bsuiness, including the proof of address, bank statement, cash flow statement, tax record, and article of incorporation, are collected. All the documents are screened against the databases of the parent registry, regulatory body, and other official agencies.
- UBO Verification
The ultimate beneficial owners of UBO are the people behind the business, of which verification is necessary. If the shareholders are involved in financial crimes, it increases the fraud risks of partner companies. The beneficiaries, directors and shareholders in participation are necessary to verify the complete business. When the UBO is unidentified, it multiples the risk of financial crimes for partner companies.
- AML Checks
It is obligatory for the bsuiness and the bsuiness people to comply with local and foreign regulations. If the counterparty violates the laws, it may lead to legal consequences. Anti-money laundering AML checks are applied to business verification to validate compliance with regulations. The AML checks help to detect whether the company or identities behind it are involved in money laundering. The business must apply sanction list checks, watchlist checks, and PEP checks for politically exposed persons to detect red flags.
- Adverse Media Checks
The adverse media checks involve collecting the negative media about the counterparty. The news is collected from reliable media resources to detect false negatives. Once the negative media is collected, it is screened against the official databases.
- Enhanced Due Diligence
Enhanced due diligence is the process of continuous monitoring of the counter parties. EDD keeps the business vigilant about the financial performance of partner companies. It involves periodic reviews and reporting to the relevant authority. With the help of EDD, business analyze the status of the UBO if any changes occur and it also detects if non-violation occurs.
Concluding Remarks
Third party due diligence involves a thorough investigation to assess the legal status and financial performance of the parties involved. The data regarding business and the bsuiness person are collected and screened against relevant databases. The business regulations for each company varied in accordance with the country’s jurisdiction. Bsuiness world must follow a rigorous third party due diligence policy while onboarding. Due diligence validates the business’s legitimacy and detects the red flags in the industry. Also, regular monitoring of the financial performance of the bsuiness partners is necessary. Overall, business verification helps establish secure financial bonds and stay compliant with regulations.
