There are constant risks associated with building relations with business and financial institutions. The onboarding company can be engaged in money laundering or other finance-related crimes that may lead to legal penalties. However, with the rigorous third party due diligence that involves passing through an inspection, such risks may be minimized. Therefore, Know Your Business KYB services are necessary to onboard the company. It is necessary to evaluate the legal framework of the third party and its financial history, hence protecting the partner company’s financing. 

What is Third Party Due Diligence?

Every business enterprise relies on third-party due diligence to inspect the legitimacy of the partner companies. Third party due diligence is the process of taking an all-around look at the third party to validate its legality. It involves data collection, documentation, background checks, and constant monitoring of third parties. The primary purpose of business verification is to determine the legal status and financial performance of the counterparty. The financial status of the business partner involves the analysis of the cash flow, business balance sheet, and tax compliance report. 

KYB includes a validation of the legitimacy of business identities such as beneficiaries, directors, and shareholders. It is also used to gather all the shareholders’ information and examine them to check if the business complies with laws and regulations. 

Third Party Due Diligence Solutions

The process of business verification involves several steps necessary for the formation of healthy business relations. The step-by-step third party due diligence policy is discussed below:

• Business Information Collection 

In the first process of third party due diligence, the information, including company name and address, date of registration, registration number, and licenses, is collected. Some businesses, such as online gambling, customs, and insurance, need licenses from the appropriate enforcing authorities; thus, the licenses are obtained. 

• Third-Party Documentation

The third-party documents are collected and analyzed to carry out the detailed business verification. The documents that include proof of address, tax records, balance statements, and cash flow statements, among others, are collected. The screening of all the collected documentation against the public databases of parent registries and regulatory bodies is necessary if there is an invalid or missing document in the company, that leads to raising the alarm of the business partner. 

• Understanding of Ownership 

The details of the beneficiaries, directors, and shareholders of the business are determined. According to the jurisdiction of the country, the ultimate beneficial owner (UBO) of the company is one who has a specific stake and voting rights in the company. UBO’s identity details, such as names of the ultimate beneficial owners, their physical addresses, contact numbers, and any other relevant details, are obtained. These UBOs’ tax returns, photocopies of driving licenses, passport identifiers, and other documents are collected. The screening of the UBO documents assists in identifying the UBOs in the company. 

• Conducting AML Checks

The anti-money laundering AML checks help determine whether the company or the identities related to it are involved in any money-related crimes. The business may not pose great risks to the business, but some of the shareholders in the participatory chain may be exposed to risks. Businesses, as well as all the UBOs, must follow the provisions of the anti-money laundering legislation. Otherwise, the business partner may suffer penalties or heavy fines. When the business and the identities behind it pass the AML checks, there will be minimal chance of legal penalties. 

• Adverse Media Screening 

In business verification, adverse media screening is useful in mitigating false negatives. Then, collected information is screened against the databases to get the negative news from reliable media sources. The information available in public domains determines if the information provided in negative media is authentic or fake. The business name filtering against sanction lists, watchlists, and politically exposed person lists also assists in identifying red flags. 

• Enhanced Due Diligence 

After getting the business onboard, the next step is monitoring the partner companies. In enhanced due diligence, firms continue doing business by staying vigilant. To ensure no fraudulent transactions are made by third parties, one must examine the financial performance of third parties. Periodically, checking the status of the UBO is also necessary to identify risks in the sector. An organization must screen the business continuously against the lists that have been released by the regulatory bodies to meet the regulations. 

Final Remarks 

Third party due diligence must be mandatory to establish financial relations in the market. KYB verification involves the assessment of the business to prove its authenticity through scrutiny. The assessment of the financial performance in business verification allows for loopholes and minimizes challenges. The business world must be careful when establishing financial relations to minimize fraud cases. The long-term financial relations are secured so that the reputation of the business in the market rises.