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The words Due Diligence in the financial sense describe the process by which a bank or financial institution checks the identity, background and other aspects of the source of wealth of potential and existing customers. High quality due diligence requires careful and persistent effort by a financial institution to find out about the background and source of wealth of a customer. This provides two key benefits for the risk-aware financial business – first, comfort that the firm is not exposing itself to excessive risk of being used by criminals to launder the Proceeds of Crime; and second (and equally important), sufficiently detailed knowledge of the customer's source of wealth and financial position to be able to sell products which are appropriate and which help the customer and the firm to make money.
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Strict legal and regulatory requirements across the world to combat Money Laundering and other financial crime require financial institutions to "Know Your Customer" - having adequate information to make risk-based decisions at a number of stages in the customer relationship – at take-on, during the annual reviews and when customer activity changes and a decision may be required to exit the relationship.
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A financial institution does not want to fall foul of legislation in key financial centres, such as the UK Proceeds of Crime Act or the USA Patriot Act. Emerging economies around the globe are implementing legislation and regulation which is as tough as these laws.
A business does not want to make the wrong decisions when looking at any type of customer, be it an individual or a corporate, and especially at times of volatile economic conditions and when exploring new business in emerging markets. Good quality due diligence will ensure that a business knows the source of wealth an individual brings to them, as well as the identity and background of the shareholders and key principals behind a corporate entity or joint venture.
Similarly, during the life of a customer relationship, the firm wants to be able to carry out checks on a customer's transactions to make sure that they are genuine and to be able to research any which may appear unusual. In particular with transactions, a firm must be able to complete due diligence very quickly where there are concerns, to be sure that settlement or delivery is completed on or by the planned value date – a firm does not want to have to be paying back-value for delaying a transaction when speedier due diligence could have avoided it.
Money Laundering is the term used to describe the use of the financial system by criminals to hide the source of funds gained from illegal activity such as drug trafficking, bribery, extortion, embezzlement, theft or other criminal activity, as the criminals try to make their ill gotten gains appear genuine. Anti Money Laundering is the term used by banks and other financial institutions to describe the variety of measures they have to combat this illegal activity and to prevent criminals from using individual banks and the financial system in general as the conduit for their Proceeds of Crime. It is the quality of your customer due diligence will determine whether your institution successfully identifies and prevents money laundering from taking place.
Duediligence.net gives you access to a wide range of advice, systems and materials which ensure that you can carry out your due diligence on your customers, at take-on and during the life of the relationship, to the level expected of you by legislation and regulation. The products featured here help you to be sure that you can exclude criminals, determine whether your customer is low or high risk and monitor and review them accordingly, and make decisions during the life of the relationship. You will then be able to comply with stringent legal and regulatory requirements, keep the criminals away from your doors and protect your reputation.
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