Best Practices For Enhanced Due Diligence And Compliance

Due Diligence is a practice that comprises the investigation of a business or a person, prior to entering into a contract or agreement. Enhanced Due Diligence is the higher level of due diligence taken into force to alleviate the increased risk. It is usually done on individuals or organizations which have been flagged for more detailed level of checks and investigation. It can also be done in areas where corporate governance is not established to a mature level. There are several other risks available in terms of regulations and acts as in Foreign Corrupt Practices Act (FCPA). Enhanced Due Diligence is immensely helpful in complying with these Anti-corruption legislations.

Best Practices For Enhanced Due Diligence And Compliance

There are various set of practices that are performed with regards to Enhanced Due DIligence :

  • Enhanced due diligence is a process required to be done on individuals or entities that are considered to possess greater risk. It should be started with structured comprehensive background checks. A complete full size risk picture of the organization, its owner, operation and litigation history should be gathered and reported with a thorough research. It also involves decision making owners, potential conflicts of interest, political and criminal links, financial status, certifications, associated business units and roles and responsibilities. An analysis and report on hidden risk is also the part of the procedure.
  • There should be proper guidelines and regulations to detect activities of misconduct and unethical business practices. But detection isn’t enough, ongoing monitoring is also important. A detailed report should be generated, for documentation and re-evaluation.
  • Politically Exposed Persons (PEP) should always be subjected to enhanced due diligence. PEP relates to individuals who are entrusted with prominent public functions or otherwise exposed to individuals in these functions, such as their spouses or close family members. Appropriate risk management should be in place with the guidance of senior stakeholders before business partnerships are established with PEPs (including ascertaining if you are doing business with someone who is politically exposed). This framework should include devices to determine sources of funds and wealth and also allows ongoing monitoring of the business relationship.
  • Risk is the danger that is present in every aspect of business and numerous external as well as internal factors affect it to varying degrees. Risk being an integral part of business, in respect with enhanced due diligence needs to be analysed by experts who can identify potential risks and provide appropriate solutions to mitigate these risks.
  • There should be proper identification as well as verification of the beneficial owners according to the set proper guidelines available. The process needs to comprise of legality and nature of the customer. The process can be amended to have effective and better results by including management structures, rights and responsibilities of senior management and major stakeholders.
  • The procedure of enhanced due diligence is not only in relation with the potential clients but also with the ongoing clients connected with you. There have to be proper systems and controls to monitor and flag any updated information that would indicate that an existing business partner is involved in unethical business practices.
  • The rules and regulations that are in place, should be strictly adhered to by organisations and all parties involved in the business relationship. An organization can face some serious repercussions if they do not not adhere to the regulations.
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Enhanced due diligence is not a one time solution or exercise, but an ongoing process which provide organisations with the necessary intelligence to capitalise on opportunities in the global marketplace.

Neha