Due Diligence

Do you ‘Know Your Customer’ well enough?
Are you doing or planning to do business with an organisation that is not quite well known to you or your company?

As it is said, your customers are the lifeblood of your organisation, however, not knowing them well enough may expose and subject your business to potential risks such as the hazards of losing reputation, operational and legal risks.

Hence the principle of ‘Know Your Customer’ goes well beyond knowing the customer’s type of business to understanding the business relations that the customer has with other entities and networks, in order to mitigate the risk of the likelihood of getting caught in a web of potential criminal activities.

This briefing note sets out the principles to be implemented when new customers are acquired, and the importance of continuous monitoring of the operations of existing customers.

The objective is to emphasise that just ‘Knowing Your Customer’ is not enough, rather, a comprehensive due diligence carried out by experts is crucial for your business. The cost and time for conducting such due diligence procedures is not even a fraction of the financial and/or reputational loss that a business may face.

Importance of conducting due diligence

• To assess the credit history of the business
• Determine the likelihood of absconding odds of the business
• Identify any red flags – no surprises
• Knowing the business owners, current status of the business and understanding the future plans - independent review
• Analysis of financials, stocks and credit worthiness of the business – window dressing
• Relationships with other customers, suppliers and other stakeholders – reputational check
• Complying with the regulations and legal requirements
• Ongoing monitoring

Corporate

A check on the details/documents relating to employment history of the candidate to verify the veracity of the employment history, this includes a verification with the Human Resource Department or the concerned official of the previous organization. In addition, the authenticity of the firm will also be checked before proceeding with the verification.

Credit Check

Credit check will give the details of the credit records of the candidate including bankruptcy / bad payment history if any. The content of the report varies in each jurisdiction. This check can be conducted only in the jurisdiction where it is legally permissible / feasible.

Qualification

The candidate’s highest academic / professional qualification would be verified with the issuing authority confirming the authenticity of the education qualification as provided by the candidate. In addition, the authenticity / accreditation of the University / Institute will also be checked before proceeding with the verification.