Introduction
Building business relations has always been risky, as it may involve fraud and financial crimes. The onboarding business or its shareholders may be involved in money laundering or terrorist financing. The illegal entity may lead to legal consequences such as fines and sanctions on partner companies. There is a record of many small businesses collapsing because of improper verification of partner companies. For this reason, corporate screening is necessary to verify the legal status and assess the business activities of the counterparty. A complete analysis of the financial performance is also required, as it significantly reduces future risks.
What is Corporate Screening?
Corporate screening is the process of a complete investigation of a business, including its legal status, financial performance, shareholder details, and business activities. An organisation must collect industry-relevant information from the business in question. All the collected details must be verified through screening against the databases of the parent registry. The regulatory bodies operate in the country and internationally, and the screening of business names against their databases is also necessary. The screening of the business data is quite effective in detecting red flashes and reducing risks.
Corporate Screening Checklist
For the purpose of the corporate screening, the following information is required to be collected about the business in question.
- Name
- Address
- Contact Details
- Tax ID
The documents required to collect are as follows:
- Annual report
- Balance sheet
- Bank statement
- Proof of address
- Tax record
All the collected data and documents are screened against the relevant authorities’ databases. Once the legal and financial status of the business is assessed, it helps build healthy financial relations.
Corporate Screening Background Check
The business must apply background checks on the partner company to evaluate its history. The primary goal of conducting background checks is to identify money laundering, bankruptcy, terrorist financing, corruption, and other crimes. It also assesses whether the company has faced sanctions or penalties because of non-compliance with regulations in the past. The crucial business checks include sanction screening, watchlist screening, blacklist screening, and adverse media screening. Additionally, the politically exposed person’s PEP checks are applied identities behind businesses to detect risky profiles and criminals.
Importance of Corporate Screening Services
Corporate screening is crucial for building financial relations within the market. The screening of the company is significant to business partners for many reasons. Let’s discuss the importance of business screening here.
Financial Transparency
The business requires screening of the partner company at the time of onboarding. The financial performance of the company is evaluated based on bank statements, balance sheets, income statements, annual reports, and other industry-relevant documents. All the financial records are analyzed and screened against databases to identify the potential risks. Once the financial status of the company is assessed, transparency in transactions is ensured. The fraud risks are reduced, so the opportunities for business growth are increased.
Risk Mitigation
While building networks in the industry, a business faces financial threats from other parties. The evaluation of the other party is necessary as the shareholder may be involved in illicit funding. In making a bond with a shell company, a business must be more conscious. The shell companies have a policy to hide their ultimate beneficial owner’s identities, so it is difficult to verify their UBOs. However, the ultimate beneficial owner verification is the primary component of business verification. The information on UBO, including their name, address, contact number, and relevant documents, is collected. All the shareholders in the participatory chain are verified to detect risky profiles. Once the UBO is verified, it gives security to the business while making relations. Hence, corporate screening is an effective gateway for risk mitigation.
Compliance Obligations
International and national regulatory bodies enforce regulations throughout the business world. Businesses must comply with anti-money laundering AML and counter-terrorist financing CTF regulations; otherwise, they will face sanctions and penalties. If the business onboard the company is non-compliant with standard regulations, the partner company may face legal consequences. To mitigate this challenge, the anti-money laundering AML checks are applied over the company and the identities behind it. It helps detect risks related to compliance obligations at the onboarding time. The AML checks can also be applied after onboarding for third-party risk management.
Final Words
Corporate screening is an inevitable process while onboarding companies. A complete investigation of the third parties, including their financial performance, legal status, and UBOs, detects the risks. The business detects the financial risks related to the partner company and reduces the chances of facing legal consequences. The background screening about the company’s past ensures a secure future. As a result, healthy financial relations are built in the industry with reduced risks of crimes and non-compliance.
