What is enhanced due diligence and when should you carry it out?

13 Feb 2015
enhanced-due-diligence

Photo by Sean MacEntee (Flickr) is licensed under CC BY 2.0

Enhanced due diligence is of enormous importance in today’s business world, particularly with the rapid development of technology creating new ways of committing fraud and laundering money every day. It is important not to let your business practices become complacent, because otherwise you open the door to fraudsters. Enhanced due diligence is the best means of stopping them.

But what is enhanced due diligence?

Due diligence is the process by which businesses make checks on organisations and individuals before entering into transactions with them. In effect, due diligence requires that you identify who you are working with, and make sure they are legitimate.

For larger transactions, bigger organisations, and situations where the businesses or individuals do not meet face-to-face, enhanced due diligence is recommended because the stakes are bigger. Enhanced due diligence is a more detailed standard of checking. For example, if due diligence requires that you look at certain forms of identification, enhanced due diligence might require additional documents, company checks, company history, and supplemental measures to verify or certify the documents sought or supplied.

Why is enhanced due diligence important?

There are two reasons why enhanced due diligence is important to your business. Firstly it is designed to make sure that your client, customer or perhaps even potential employee is not a fraudster looking to exploit weaknesses in your business processes. Secondly it is designed to make sure that your business does not fall foul of the money laundering regulations. These regulations are strict and in many cases, businesses do not actually need to know what is going on to be guilty of money laundering under the law. Ignorance is enough.

If you already have an enhanced due diligence procedure in place, that’s fine, but make sure you review it frequently. This is because some criminal groups will be the most technically advanced groups out there. These groups will have intimate knowledge of all the latest loop holes, weaknesses and security flaws in a business’s processes.These include their day to day operations, email correspondence, social media, software updates, supply chain management and ah-hoc transactions.

Most of us are used to getting bogus phone calls, dodgy emails and disguised system updates that could be all kinds of viruses. But how would your compliance processes deal with someone exploiting a weakness in your supply chain, interfering with your quality controls and substituting inferior products?

Enhanced due diligence aims to stop all of this from happening, by stopping fraudsters and money launderers from accessing and exploiting your business processes. Enhanced due diligence identifies those that your business interacts with, whether they are clients, customers, suppliers or employees.

Private investigators and enhanced due diligence

Some businesses require outside help to carry out proper enhanced due diligence, often because their processes and commitments don’t allow them to find out as much about a client or company as they would like. These businesses turn to private investigators to carry out enhanced due diligence checks for them.

Private investigators do this by fully investigating an organisation or individual’s history from a variety of sources. They are highly trained and experienced in working discreetly and anonymously at all times.

So if your business is about to enter a major transaction with a new client or company, and you do not think your due diligence processes will suffice, consider hiring a private investigator. It’s simply not worth falling foul of a fraudster’s tricks or the stringent laws on money laundering.

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