Onboarding the company without due diligence is risky for financing and business reputation. Rely on third party due diligence to smooth the hiring process with security. The corporation has to build bonds with multiple partners, although investigating all of them is essential. It is vital to ensure companies are not involved in financial crimes. Money launderers are the red flags as they are highly exposed to breach contracts. Every company has a different level of associated risk that must be dealt with, from basic to enhanced due diligence.
What is Third Party Due Diligence?
Third party due diligence is a comprehensive examination of companies during their onboarding process. It involves conducting a thorough assessment of the company’s financial, legal, and operational aspects to ensure that they meet the required standards. Due diligence is an effective process to filter out risky vendors and the risks associated with them. It reveals any case of a company involved in corruption, bribery, money laundering, terrorism financing, and bankruptcy. However, third party due diligence companies are necessary to maintain with the existing vendors as well. It ensures secure financing and trustworthy business relationships.Â
Third Party Due Diligence Checklist
The checklist of business due diligence consists of the following information:
- Name
- Physical Address
- Registration number
- Contact information
- Tax reference number
- Owner’s relevant documents
Third Party Due Diligence Solutions
The screening of third parties involves primary steps that are discussed below:
1. List Third-Party Vendors
In the first step, the corporation has to gather all the names of the third parties. After collecting the names of business partners, the next step is to gather all the relevant information pertaining to them. In the list of third parties, add the physical address, contact information, registration number, and owner’s information. The risk associated with the information is undiscovered in basic due diligence.
2. Collect Vendor Document
Corporations must collect specific documents to screen for third parties to be legal. The documents related to the beneficial owner of the companies are also collected. The documents, including the income statement, balance sheet, and financial statement, are gathered and analyzed. All those documents are screened against the databases of legal authorities. The fake or missing documents are identified, which protects from fraud in the future.
3. Determine the Vendor’s Location
The location of the vendor is the main thing that determines its legitimacy. Companies that have no registered addresses are exposed to risk. The missing or invalid address raises a red flag, which must be suspected. Businesses should check the company’s mailing address, which can also be suspicious. Additionally, it is important to locate the region of the company to confirm its actual existence. Businesses should also ask them to submit documents such as the lease agreement, mortgage, and tax record on which the address of the company is mentioned.
4. Perform AML Checks
Money laundering is threatening financial crime in the current business world. A company or ultimate beneficial owner can be involved in money laundering. An organization must apply anti-money laundering AML checks over third parties while hiring. It helps to ensure that partners comply with AML regulations for security in financial relationships.Â
5. Risk Management Assessment
For the vendor due diligence, it is important to conduct a risk management assessment. Organizations have to identify potential risks associated with companies to prevent future consequences. In addition, it is essential to evaluate the level of the risk to mitigate it accordingly. Companies with a history of money laundering or criminal records are considered high risk. Enhanced due diligence is the best way to deal with such high-risk profiles. This third-party due diligence assists in detecting suspicious transactions by existing partners.
Streamline Vendor Onboarding
Onboarding third parties without inspection is always prone to threats and risks. The suspicious parties badly affect the corporation’s finances. If the partner of an organization does not comply with AML regulations, there is always the risk of fraud. Therefore, business information must be screened against databases to verify its legitimacy during third party due diligence. Enhanced due diligence allows to keep everything on record with high risky profiles. Rely on professional third-party due diligence solutions to ensure security in future transactions.
