As businesses grow and enter new global markets, their regulatory challenges also expand. Corruption, money laundering, data privacy beaches, 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.
Level 1: The 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:
- Money laundering
- Sanctioned individuals / corporations
Although this level of due diligence may suffice for some companies, many others absolutely require level-two checks.
Level 2: The next level of due diligence
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.
The solution: 3 Powerful tools for comprehensive due diligence checks
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.
Frequently asked questions about due diligence checks
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.
Handshakes, headquartered in Singapore, is an award-winning DataTech company and expanding due diligence software vendor, providing tools to streamline and manage the due diligence checklist process.
What is the checklist for due diligence?
To conduct a comprehensive and thorough investigation of a potential transaction or investment, it is important to have a due diligence checklist. This checklist is a document that outlines the various documents and data that need to be reviewed to assess the viability and risks associated with the transaction.
The checklist typically includes items such as financial statements, contracts, legal agreements, market trends, and regulatory compliance. Other important items may include intellectual property ownership, technology infrastructure, vendor reputation, and client references.
By using a due diligence checklist, companies can ensure that they gather and analyse all relevant information, making informed decisions about the transaction. An all-inclusive checklist can also help streamline the due diligence process, minimise the risk of overlooking critical items, and serves as a crucial tool in the due diligence process. This ensures all parties have a complete understanding of the transaction before making a final decision.
Don’t miss out on critical information during your business decisions. As a dedicated software vendor enabling greater market transparency and faster risk detection, we ensure you can cover the entirety of due diligence checklists in a thorough manner. Get in touch today to learn more about how we can help you make informed decisions with confidence.