Compliance check of counterparties in business

Legal company “Prikhodko and partners” provides comprehensive services for conducting compliance checks of counterparties, which is an important element of risk management in every business.

In this article, we would like to take a closer look at what a compliance check is, what its types are, why it is needed, and how to properly organize this procedure.

Let’s start by defining the compliance check and its types

A compliance check is a process of collecting and analyzing information about a counterparty to assess its reliability, compliance with legal requirements and internal company policies.

Regardless of the type of business or its location, compliance provides protection against legal risks, reputational losses and financial losses associated with cooperation with unreliable partners.

The main types of compliance check include:

1. Financial compliance — checking the financial statements of the counterparty company, in particular the balance sheet, financial results report, tax declaration, etc. This type of check allows you to assess the financial stability and solvency of the partner.
2. Legal compliance — analysis of the legal aspects of the company’s activities, the presence of court cases, licenses, permits and other legal processes that may in the future affect, including, the conduct of your business.
3. Corporate compliance — study of the counterparty’s ownership structure, verification of the presence of politically significant persons or public figures, ultimate beneficial owners and directors of the company.
4. Anti-corruption compliance — verification of the counterparty’s compliance with anti-corruption legislation, prevention of participation in corruption schemes (depends on jurisdiction and type of activity).
5. Check for sanctions — analysis of the counterparty for the presence of it or related persons on international sanctions lists (for example, OFAC, UN, EU lists).

What is a compliance check for?

A compliance check allows a business to reduce the risks of cooperation with unreliable counterparties, ensure compliance with legal regulations and avoid possible sanctions or reputational losses.

The main objectives of the compliance check:

1. Minimization of risks — identification of possible financial, legal or reputational risks of cooperation with the counterparty. This may be related to his participation in corruption schemes, court cases or the presence of sanctions.
2. Prevention of violations of legislation — ensuring compliance of cooperation with the counterparty to the requirements of anti-corruption, tax and other legislation. For example, cooperation with companies on sanctioned lists may result in fines or other legal consequences.
3. Protection of reputation — cooperation with unreliable counterparties can negatively affect the company’s reputation. For example, participation in money laundering schemes can lead to international sanctions and asset freezes.
4. Financial protection — verification of the counterparty allows you to assess its financial stability and avoid entering into agreements with companies that may turn out to be insolvent.

What does a compliance check consist of and how is it carried out?

The compliance check consists of several main stages, each of which is aimed at studying specific aspects of the counterparty’s activities:

1. Collection of information:

• At the first stage, it is necessary to collect all available data about the counterparty: registration and statutory documents, financial statements, information about owners and managers.
• It is also worth checking sources of public information (state registers, news, databases) to identify possible negative facts.

2. Analysis of documents:

• All documents are checked for compliance with legislation, availability of necessary licenses and permits. This allows you to make sure that the counterparty acts legally and transparently.
• In addition, it is important to evaluate the company’s financial statements to ensure its stability and solvency.

3. Criminal record check:

• The presence of court cases, executive proceedings or other legal conflicts involving the counterparty is assessed.
• This stage allows you to understand whether the company has risks associated with failure to fulfill its obligations or participation in questionable transactions.

4. Analysis of the corporate structure:

• The owners and ultimate beneficiaries of the company are verified, which allows you to avoid cooperation with fictitious companies or those controlled by persons with a bad reputation.
• Special attention should be paid to politically significant persons (PEPs), as cooperation with them may have additional risks.

5. Check for sanctions and anti-corruption risks:

• The counterparty is checked in international and national sanctions lists, as well as for compliance with anti-corruption legislation.
• This allows you to avoid cooperation with companies that may have restrictions on conducting activities.

6. Risk assessment and decision making:

• After the completion of all stages of the verification, a report is drawn up with an analysis of the collected information and an assessment of the risks of cooperation with the counterparty.
• Based on the results of the inspection, a decision is made on the possibility or expediency of cooperation with the counterparty.

Conclusion

Counterparty compliance review is an important tool for ensuring safe and transparent business operations.

The correct approach to this procedure allows you to minimize the risks of cooperation with unreliable partners, ensure compliance with legal requirements and protect the company’s reputation.

Specialists of the Law Company “Prikhodko and Partners” offer professional assistance in conducting a compliance check of counterparties, providing a comprehensive analysis and minimizing risks for your business.