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Tailoring Due Diligence to Support Business Growth

Tailoring Due Diligence to Support Business Growth

In today’s climate terms like ‘due diligence’, ‘being risk averse’ and ‘risk assessment’ might seem like jargon and barriers to productivity, but in reality, addressing third-party risk through onboarding due diligence and risk assessments helps ensure successful growth. But due diligence is not a one-size-fits-all process. Let’s take a look at what defines effective due diligence, what key steps should organisations take, and what tools can help you implement a process that meets your unique needs.

We need to face facts—the world has gotten smaller. Round-the-clock news and social media can directly impact shareholder confidence. In November 2016, for example, French construction giant Vinci was the subject of hoax press release that caused a 19% drop in share value. Consumer expectations for same-day or next-day delivery has led to an emerging logistics risk for retailers in the US and the UK. Reports by non-governmental organizations outline numerous risk factors organisations must consider in light of for U.S., UK and EU government regulations, as well as investor and shareholder pressure to address issues like modern slavery,bribery and corruption.

The pace of doing business has accelerated. As a result, the level of risk that organisations of all sizes face has increased. Butbeing overly risk averse can actually hold back an organisation. HSBC’s chairman warns of a “growing danger” that employees are becoming too risk-averse because they fear punishment for mistakes.

What is Effective Due Diligence?

Due diligence can be defined as “the care that a reasonable person or organisation exercises under specific circumstances to avoid harm to themselves or others.” Organisations must mitigate risk by performing necessary and appropriate due diligence before engaging with customers, partners, suppliers or other third parties, as well as prior to undertaking expensive and/or critical efforts.

Whether you are engaging in new business-relationships, expanding into new markets, preparing a prospectus for an IPO, vetting third parties, or simply looking at investment opportunities, you need the right intelligence and insight to make the most risk-averse decisions. Good due diligence allows you and your partners to evaluate risk now as well as in the future.

While thorough onboarding has been a requirement for financial services / banking for years, globalisation has increased the risk across a much broader swath of industries. It is essential that businesses become completely familiar with the operations of international clients, business partners, distributors, agents, consultants and individuals before conducting offshore transactions, establishing formal corporate partnerships or committing to international investments. Organisations worldwide—not just those that typically may have been seen as high risk—have realised that a strong, transparent and accountable risk mitigation process is a prerequisite for proactive intervention. One key component of a due diligence program is a strong, regularised monitoring and evaluation process.

What key steps, aligned to situational risks, should an organisation take:

  • What countries do you do your business in, and where are your business contacts?
  • Are foreign laws such as Modern Slavery Act, California transparency Act, Bribery Act, US Foreign Corrupt
    Practices Act applicable to you?
  • How much risk can be foreseen in doing business with the company in question?
  • Are there any Politically Exposed People (PEP) involved in the relationship?
  • How much have you researched into the company – were there any adverse reports, litigious claims and so on?
  • Who are the true beneficial owners?

What is clear is that it is difficult to consider these steps with web research alone. There are sanction lists, watch lists, compliance related lists, news reports and company profiles which may not always be accessible or open to searches.

Each company should consider what screening is required for each project or major program of work and then consider what the internal and external risks could be, and what solutions are right for them.

When evaluating solutions for conducting due diligence, look for tools that:

  • Offer secure, cost-effective case management and workflow solutions
  • Simplify screening and monitoring of new and existing customers, agents suppliers and other third-parties
  • against global watch lists, PEPs, negative news and internal proprietary watch lists
  • Execute risk classification of clients or third parties using a risk-based approach (subject to geographical exposure, behaviour, activity, origin of client relationship, missing documents etc.)
  • Capture daily screening results and reports to help identify red flags that signal a need for enhanced due diligence for entities
  • Conduct unlimited manual name checks against sanctions, Interpol, and PEP lists as well as internal blacklists
  • Generate comprehensive reports and audit data essential for regulatory compliance

Supporting business growth is a powerful incentive for implementing due diligence, but organisations should also consider how an effective risk mitigation strategy also empowers them to play a major role in economic, environmental and social progress, especially when they minimise the adverse impacts of their operations, supply chains and other business relationships.

3 Ways to Apply This Information Now

  1. Download our eBook, “The Due Diligence Checklist,” for risk mitigation best practices and more.
  2. Request a demo to see how solutions like Diligence spotter and BatchNameCheck help you automate due diligence aligned to your risk profile.
  3. Share this blog on LinkedIn to keep the dialogue going with your colleagues and contacts.

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