Doing Your Due Diligence - How to Prevent Financial Crime

Through the protocols put in place by an international organization, we have reduced financial crime.

Financial crimes like money laundering and terrorist funding can wreak havoc on a business, the economy of the local area, and the entire world, if it is left to run its course.

That is why it is important that every person do their due diligence to verify the legitimacy of the people or companies they do business with.

If you are running a business that hires other companies, you should perform company due diligence.

What is due diligence?

Due diligence is a requirement for financial institutions around the world.

It requires them to do detailed research on each individual and business that opens an account with them, and to do periodic checks to determine the risks of that entity committing a financial crime.

There is no standard for due diligence on a global level, but the basic guidelines are to monitor a customer’s transactions for possible risks.

Each customer is typically assigned a risk rating that can change depending on certain circumstances.

These ratings can fall under 3 tiers.

The tiers are:

• Simplified (SDD) — this means that the customer is at a low risk of committing financial crimes.
• Basic (CDD) — at this level, a financial institution should ensure the customer’s identity is verified and recess the risks
• And enhanced (EDD) — this means the entity has shown a high risk or has a high net worth that needs further investigation. This could also be due to the person or entity being politically exposed, which means they may be at risk for money laundering.

Not only for financial institutions

Doing due diligence may be required of banks and other financial institutions, but can and should be utilized with any business or individual who consistently trades money or goods with an entity.

Money laundering and scams are a risk that not only affects our economy at the financial institutions, but also in every walk of life.

Criminals are typically one step ahead of their victim, doing due diligence can catch and prevent these criminals from committing their crimes.

Information required

When you or a financial institution verifies an entity, the main goal is to understand what they stand to benefit from their transaction and to determine the risks they present.

The information required typically includes personal identification, address, phone number, and financial history or credit check for an individual.

For a business, the requirements include business name, type of industry, all beneficial owner’s names and personal information, the company's financial statements, establishment date, and the physical address of the company.

Protect yourself and your business by doing your due diligence.

Financial crimes that go undetected can destroy entire nations.

As a company dealing with other companies, you should be doing company due diligence before doing business with any company.

If you see or notice suspicious financial or criminal activity, don't hesitate to report your findings to the proper authorities and turn down business from that entity — your money, reputation, and freedom could be on the line as with the economy of the nation.