Onboarding the business without verifying its identity is a threat to the financing and reputation of the company. In the US, enterprises face 4 billion yearly losses because of fraudsters and criminals. Therefore, third party due diligence is the most reliable way to manage risk and threats. Business due diligence allows corporations to inspect the details of onboarding companies. The politically exposed person (PEPs), blacklisted, and criminals are detected in this investigation process. The companies involved in money laundering, terrorist financing, corruption, and other financial crimes raise red flags. The ongoing monitoring of the risk profiles helps manage the risk and maintain the business reputation.
What is Third Party Due Diligence?
Third party due diligence is a thorough review of the business information to verify its identity and assess the level of risk. The investigation involves understanding the legal and financial status of the companies. The risky vendors that are involved in money laundering, tax evasion, and illegal activities are exposed. In this way, due diligence helps to hire legal companies that ensure secure financing for the long term. Hence, healthy business-to-business relations build, which boosts growth and reputation in the market.
Third party Due Diligence Checklist
The due diligence of the vendors is based on a detailed investigation of business data, which includes the company’s name, physical address, mailing address, tax reference number, registration number, and contact number. The business in question has to submit documents for verification, which are as follows:
- Articles of Incorporation and Association
- Bank statement
- Cash Flow Statement
- Certificate of Incorporation
- Copy of Director Registry
- Copy of Shareholder Registry
- Copy of ultimate beneficial owner’s license
- Copy of State Business Registry
- Proof of Address
- Memorandum
Third Party Due Diligence Solutions
Over time, business verification has become more critical when onboarding companies. Let us explore third party due diligence solutions to prevent fraud and risks.
- Collection and Analysis of Data
The primary step of business verification is data collection, including the details of the company’s name, address, registration number, and documents relevant to the industry. All the collected information is screened against the official databases of government and legal bodies. The missing or invalid information raises red flags about the business. Usually, shell companies hide the details; therefore, they are prone to financial threats. The verification process gathers the business data and evaluates it to mitigate the risks.
- UBO Verification
UBO Ultimate beneficial owner is an entity behind the business holding at least 25% of the share. UBO identification and verification are mandatory for business verification. The corporation asks for the UBO names, contact numbers, physical address, and photocopies of passport ID or driving license. The company in question was also asked to submit the UBO document relevant to the industry. UBO verification through data screening ensures the company is legitimate when onboarding.
- Conduct AML Checks
Money laundering is a serious threat to business operations, finance, and reputation. Hiring a money launderer vendor is constantly exposed to fraud. For business verification, background checks are applied to the companies to detect their history of black money, crimes, and illegal funding. Conducting anti-money laundering (AML) checks on companies is an integral part of the investigation process. This reveals whether companies comply with AML regulations recommended by the Financial Action Task Force FATF. So, business partners remain safe from legal consequences such as hefty fines, sanctions, and other penalties.
- Risk Assessment
In the business verification process, the company’s data is analyzed to determine its legal status. The evaluation of the financial status occurs, which detects the risks and threats. The identification of red flags helps corporations prevent fraudsters, criminals, and politically exposed persons (PEPs). Third-party diligence companies also help assess the level of risk, so the corporation categorizes onboarding partners into low, medium, and high-risk profiles. In this way, corporations prevent potential risks by tracking the financing.
Manage Third Party Risks
Third party due diligence is the most authentic and reliable way to streamline business onboarding. This process analyzes the business in question and detects all the associated risks. Due diligence ensures risk detection to secure financing in business-to-business bonds. Corporations must understand the importance of evaluating the company’s relevant documents to verify its legitimacy. The criminals, sanctioned people, and fraudsters are identified through data screening. In the end, transparent financial relationships are built among businesses with confidence for the long term.
