KeyNorth Risk Insights: Enhanced Due Diligence
Know your risks and comply with the laws that govern your business transactions.
Enhanced due diligence refers to additional procedures that you undertake to verify the particulars of an individual or organization; and to uncover any additional risks that might cause you concern.
Examples of circumstances in which enhanced due diligence inquiries may be conducted include:
- Compliance with anti-money laundering laws such as the Canadian Proceeds of Crime (Money Laundering) and Terrorist Financing Act, the U.K. Proceeds of Crime Act 2002; and the anti-money laundering provisions of the U.S. Bank Secrecy Act;
- To identify beneficial owners of funds, assets or business interests;
- For appointments of key persons for whom the standard employment background checks are not sufficient. These might include board appointments or C-level executives;
- To comply with anti-bribery laws such as the Canadian Corruption of Foreign Public Officials Act, the U.K. Bribery Act, the U.S. Foreign Corrupt Practices Act or domestic regulations relating to bribery;
- To comply with fraud risk assessment procedures under certain accounting standards;
- As a standard risk management procedure when selecting a partner, supplier or distributor; or when financing a venture.
The team at KeyNorth Risk Insights conduct these inquiries across the globe, leveraging our investigative research skills and our ability to do on-the-ground verification.
Choose from one of our predetermined risk profile programs so that you know the cost requirements and the scope of work upfront. These programs include:
- Basic Corporate Verification;
- Channel Partner Due Diligence;
- Enhanced Due Diligence Level 1;
- Enhanced Due Diligence Level 2;
- Enhanced Due Diligence Level 3 with Beneficial Ownership.
Alternatively, tell us your requirements and we’ll design a research program to meet your specific needs.
A financial institution retained the KeyNorth Group to review the background of an account applicant. The applicant identified that their business was a legitimate retail store, but that information turned out to be false.
Our research of publicly available information identified that the individual who signed the application on behalf of the business was facing criminal charges relating to proceeds of crime and money laundering; and that the business he said he was operating was vastly different than the one he was actually operating. It was a criminal enterprise.
We conducted a site visit and determined definitively that the business activity was totally unrelated to the information provided by the applicant to our client. Our client was thrilled to know the information.
Investigating Before Investing
The investment business is inherently risky. Decisions aren’t to be made lightly. And when considering where to put your money, you want to be sure it’s a sound opportunity. In 2018, KeyNorth was called upon to undertake enhanced due diligence for an investment fund. A business in the ever-growing cannabis sector was seeking funding and the fund in question wanted to thoroughly examine the background of the business’s central players.
Through open source intelligence gathering, and other investigatory methods, it was determined that an individual involved in the organization had been sanctioned by a regulator for misrepresentation. A second individual had made a series of inappropriate comments on social media, and a third was found to have been sued by previous business associates.
The red flags that were uncovered helped our client make an informed decision about accepting, rejecting or adjusting the terms of this investment deal.
A History of Breaking Their Promises
A large technology firm was considering entering into a channel partner relationship with a small distributor in another country. The technology company retained us to examine the background of the prospective channel partner.
During our research we learned that the proprietors of the company had shut down and started up several businesses in succession in just a few years. Why? Because they were consistently being sued by previous suppliers for violating the terms of their distribution agreements, particularly with respect to supply chain integrity and failing to make payments on the products they were reselling.
Minor Red Flags that Add Up to a Pattern of Behaviour in a Key Hire
A publicly traded company in the resources sector retained us to examine the background of a senior prospector they were considering to manage a major exploration project.
The individual had excellent credentials and was very experienced; however, our research identified numerous drinking and driving infractions across a number of years and in multiple jurisdictions.
Individually, these specific charges were inconsequential with respect to the position he was being considered for; however, the pattern of behavior was of concern to the Board.
• The United Kingdom’s Serious Fraud Office handles investigations relating to anti-corruption and bribery, among other serious economic offences. The volume of cases aren’t high, but they are very complex. According to their 2017 annual report 13 defendants out of 15 were convicted during the year, resulting in conviction rates of 86.7% by defendant and 100% by case. For the cases they pursue, they have a very high conviction rate.
• According to the US Department of Treasury, there are currently 29 sanctions programs in place relating to the blocking of assets and trade restrictions. Doing business with individuals and businesses subject to these sanctions can have serious consequences.
• The Canadian Securities Administrators’ website publishes notices of discipline against individuals and companies as far back as 1987. This should be consulted before investing with any investment firm or individual advisor.