News MonitoringConduct due diligence checks with ease, efficiency and cost-effectiveness
As businesses grow and enter new global markets, their regulatory challenges also expand. Corruption, money laundering, data privacy breaches, and export controls are just some of the complexities that can negatively impact your brand – and possibly even land your business in legal trouble.
That’s why organisations perform due diligence checks prior to engaging in any formal agreement. Businesses need to understand their potential liabilities under anti-corruption laws and other legislations, and the due diligence process allows your compliance team to make informed decisions about which parties you can do business with – and in what capacities.
Initial due diligence can also provide you with opportunities to put in place mitigation activities that lower the risks of working with higher-risk third parties or individuals representing your organisation.
What is the Due Diligence Process?
The due diligence process involves a comprehensive investigation that is carried out by individuals or organisations to assess the potential risks and rewards of a transaction or investment.
Due diligence checks entail gathering and analysing all relevant information, including financial statements, legal documents, and other essential data, to evaluate the viability and worth of a deal. The scope and depth of the due diligence check may vary depending on the type and complexity of the transaction, but it typically includes a review of contracts, financial statements, market trends, and regulatory compliance.
The primary objective of due diligence is to provide a complete understanding of the transaction, including any potential risks, before making a final decision. It is a critical element of any business transaction or investment, helping to identify potential legal, financial, or reputational risks and enabling parties to make informed decisions.
When is the Due Diligence Process Carried Out?
The due diligence process is crucial in various scenarios. For example, before entering into a merger or acquisition, a company must conduct thorough due diligence to assess the target company’s financial health, encompassing its assets, liabilities, and revenue streams. Legal standing is also scrutinised, including any pending litigation or regulatory issues. Operational efficiency is also examined to ensure a smooth integration and identify potential synergies.
Similarly, when establishing a new partnership or vendor relationship, a business should perform due diligence to ensure the partner’s integrity and compliance. This includes verifying their legal status, financial stability, and adherence to ethical business practices. A thorough background check can reveal any past involvement in illegal activities, such as money laundering or fraud, safeguarding your company’s reputation and financial interests.
These checks also happen before making significant investments. This involves evaluating the investment’s financial viability, market potential, and legal compliance. By conducting thorough research, companies can make informed decisions and minimise the risk of financial losses.
Why is Due Diligence Check Important?
Due diligence checks are essential for protecting your organisation from potential risks and ensuring compliance.
Minimising Risks
Due diligence plays a pivotal role in identifying and mitigating potential risks associated with any business transaction or relationship. It allows organisations to uncover hidden liabilities, financial irregularities, or legal issues that could lead to significant financial losses or reputational damage. By investigating potential partners, vendors, or investment opportunities, businesses can address potential red flags and implement mitigation strategies.
Regulatory Compliance
Due diligence acts as a vital tool for verifying that all parties involved in a transaction or relationship adhere to applicable legal standards. By conducting thorough checks, organisations can avoid costly penalties, legal disputes, and regulatory sanctions. This not only protects the organisation’s financial interests but also demonstrates a commitment to ethical business practices and regulatory compliance, thereby enhancing its credibility and trustworthiness.
Preserving Corporate Credibility
Maintaining a strong corporate reputation is essential for long-term success. By conducting thorough investigations and adhering to best practices, businesses can build trust with stakeholders, including customers, investors, and partners. This proactive approach to risk management and compliance enhances the organisation’s credibility and reinforces its position as a responsible and trustworthy entity.
Maximising Cost-Effectiveness
While due diligence may require an initial investment of time and resources, it is a cost-effective strategy. By identifying and mitigating potential risks early on, organisations can avoid costly legal disputes, financial losses, and reputational damage. Furthermore, thorough investigations can uncover opportunities for cost savings, efficiency improvements, and strategic partnerships. Conducting these checks also helps avoid the cost of non-compliance and non-compliance charges.
Who Conducts Due Diligence Check?
Due diligence checks are typically conducted by a combination of internal and external experts. Internal teams may include compliance officers, legal counsel, and financial analysts. External experts, such as lawyers, accountants, and specialised due diligence companies, are often brought in for complex or high-risk transactions.
The 3 Main Levels of Due Diligence Check
Level 1: Basic Due Diligence Check
This includes checking the names of individuals and companies against hundreds of global watch lists. These checklists enable compliance teams to identify potential corrupt activities, including:
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- Money laundering
- Bribery
- Sanctioned individuals / corporations
- Corruption
- Criminality
Although this level of due diligence may suffice for some companies, many others absolutely require level-two checks.
Level 2: Advanced Due Diligence Check
Next-level due diligence checks are far more comprehensive, with checks conducted across three key categories – corporate registries, enforcement actions and litigation, and international media. This is how second-level due diligence checks protect your organisation from unknowingly working with potentially harmful parties.
Compared to the first-level, second-level due diligence checks are an advanced and thorough verification process. It encompasses all the elements of the first-level, such as confirming identity, scanning for politically exposed persons (PEPs), and performing a sanctions check. In addition to these, level-two due diligence also covers more rigorous checks, such as scrutinising the source of funds and conducting a reputation check on the individual or company.
This level of due diligence is often crucial for high-risk transactions, such as significant financial investments or high-value contracts. The process combines technology and human expertise to ensure precise and dependable results. Level-two due diligence checks offer a comprehensive understanding of the potential risks linked with a transaction or relationship, enabling businesses to make informed decisions in a seamless, efficient, and cost-effective manner.
Why check corporate registries?
A third party may tell you something different from what they’ve actually filed. This is why it’s important to verify what they say, against corporate registries. Corporate registry data can also reveal ownership percentages and how the corporation is structured – showing details like subsidiaries and beneficial ownership.
Why check enforcement actions and litigation?
Before working with a third party, you need to know if they are involved in any legal actions. This includes legal or civil actions involving claims either made by them, or made against them. This may be an integrity concern to include in your due diligence report.
Why check international media?
By reviewing major newspapers and periodicals from across the globe, you could uncover information about a third party that they may be hiding from you – such as corruption or details about their key executives and associated parties. If there is already a potential red flag, it’s especially crucial to conduct a deep dive using media sources.
Level 3: Ultimate due diligence check
By gathering information on a third party using the sources mentioned above, you can significantly reduce the risk of encountering potential issues that could lead to either regulatory or reputational risks for your organisation – making decision-making simpler (and safer).
Level-three due diligence check is an exhaustive and meticulous process that a company can undertake to gather all relevant information to avoid potential pitfalls. This approach involves a thorough investigation of all available financial records, legal documents, and other relevant information to ensure that you have a comprehensive understanding of the transaction.
Typically employed for high-risk deals such as mergers and acquisitions, level-three due diligence checks are performed by legal and financial experts who conduct a detailed review of all available data. The goal of this level of due diligence is to uncover any potential risks or red flags that may be associated with the transaction and provide the organisation with a complete picture of the potential benefits and drawbacks.
Level-three due diligence is a crucial component of any comprehensive risk management strategy, enabling organisations to safeguard against financial risks such as fraud and corruption.
3 Powerful Tools and Comprehensive Due Diligence Checks Solutions
For organisations seeking to streamline their due diligence processes, Handshakes offers a suite of powerful tools designed to enhance efficiency and accuracy. As a due diligence service provider, Handshakes understands the complexities of modern compliance and delivers solutions that empower businesses to make informed decisions.
The Handshakes App is a subscription platform that gives you access to official company registries across Singapore, Malaysia, Vietnam and China – alongside capital markets data from Singapore and Malaysia.
What’s more, Handshakes’ proprietary mapping technology makes it easy to uncover hidden connections and risk exposure – giving you valuable insights in a fraction of the time traditional checks used to take.
Prefer an on-demand, done-for-you service instead?
With Handshakes Xpert, our expert team conducts your due diligence checks for you.
We dive deep into the persons and companies you want to look at, uncover their connections, risk exposure and other potential issues, then present our findings to your team.
Handshakes’ technology powers ScoutAsia, a subscription news platform developed by Nikkei and the Financial Times. ScoutAsia offers over 50 of the best Asian business and financial news sources in one convenient subscription package.
Using ScoutAsia, you are only a few minutes away from discovering any previous mentions of the third party you’re checking on – across multiple publications. You can even create alerts to monitor new mentions of specific companies or related parties for you.
What is Included in the Due Diligence Report?
A comprehensive due diligence report provides a detailed overview of the findings from your investigation. Key items typically included are:
- Financial statements and analysis
- Legal documents and contracts
- Corporate registry data
- Enforcement actions and litigation records
- Media reports and reputation checks
Connect with Handshakes for Seamless Due Diligence Check
In today’s complex business environment, thorough due diligence is essential for mitigating risks and ensuring compliance. Handshakes, a trusted data analytics company in Singapore, offers a range of innovative solutions to streamline your due diligence checks. Contact us today to learn how we can help you make informed decisions with confidence.