When a firm wants to purchase, collaborate with, or engage into a commercial partnership with another company, it performs vendor due diligence (VDD). Vendor due diligence, like customer due diligence (CDD), is an important part of AML/CFT since it reassures potential purchasers that their prospects are financially sound and pose a low risk of money laundering.
Firms must understand what sort of information is necessary to show financial health and how that information should be obtained in order to correctly complete the vendor due diligence process.
Prior to a transaction or collaboration, a target company does vendor due diligence. Customer due diligence helps financial institutions determine whether their customers are telling the truth about their identities and the level of money laundering risk they pose, and vendor due diligence does the same for companies, verifying the nature of their business and their risk of being involved in financial crime.
VDD entails the following stages at:
The buyer receives a final version of the vendor due diligence report once the sale or partnership agreement is completed.
VDD comprises a variety of critical business concerns, including AML/CFT-specific ones, and sets duties on both the third-party auditor and the target organisation. The vendor due diligence process necessitates the following processes and information:
When evaluating a vendor, keep these eight best practises in mind:
Begin by gathering basic company information to verify the company’s authenticity and ensuring that all compliance requirements and standards are satisfied.
Before interacting with a vendor, it’s vital to check the organisation’s financial information to ensure it’s financially stable and up to date on any mandatory licencing fees or taxes.
If a vendor in your supply chain suffers a data breach, your company will be held liable for any sensitive customer data that may have been exposed as a consequence.
Some companies will have visibility of sensitive information about your business, clients, and workers. As a consequence, determining a company’s legal liability is a crucial aspect of due diligence.
Third-party data breaches can cost more than $370,000, according to Ponemon’s 2019 Cost of a Data Breach Report. It’s critical to manage cybersecurity risk across partners, suppliers, and vendors so that risks may be discovered and addressed before a breach happens.
Certain third-party vendors will have more exposure to your company’s network than others, demanding more constant monitoring.
An efficient third-party risk management programme should keep an eye on emerging risks and verify that the vendor has a secure network.
VDD aids in the successful sale (or partnership) of businesses and their assets, but it may also assist suppliers in better understanding the risks that their businesses face. The following are the goals of vendor due diligence in further detail:
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