Due Diligence Background Check

High-risk, regulated businesses, such as fintechs and traditional financial institutions, are obliged by law to conduct due diligence processes in various cases, including when onboarding new clients or before starting a new business relationship with a potential partner. That said, due diligence background checks are recommended for all businesses as a security measure. 

Whenever high‑stakes risk or compliance requirements are involved, background checks should be conducted. For example:

• Before mergers or acquisitions
• When onboarding new clients or suppliers
• Before making large investments
• When forming partnerships
• When expanding into new markets or entering franchises

Traditional background checks are typically used by low-risk businesses during processes like employee onboarding. While not always required for compliance, these simpler checks (verifying name, date of birth, contact info, and employment history) help companies uphold their reputation and prevent unwelcome consequences, such as bringing individuals into the organization who do not align with its values or goals. These checks are useful for general assessment, but offer limited insight into various aspects of a proper risk assessment. 

That’s why due diligence background checks go deeper and are designed to identify potential risks, especially in high-stakes business decisions. For example, iDenfy’s KYC/KYB and AML platform can automate not only standard data verification but also help companies streamline access to various databases, for example, criminal records to see if the person doesn’t have a poor history of criminal acts, secretary of state (SOS) portals for verifying corporate entity legitimacy, sanctions lists screening, ownership structure breakdown (for hidden corporate structures), sole proprietorship onboarding with relevant document verification, including other risk factor assessments, such as bank account verification for financial health and transaction history analysis. 

It depends on the company, its scope (clients, transactions), and internal risk assessment factors (such as geographic location). 

A common due diligence background check has the following elements:

1. Initial assessment (defining the scope based on the customer’s risk profile or the transaction’s complexity)
2. Data collection from official records (for example, ID documents, financial reports, adverse media, sanctions lists, court records, etc.).
3. Document verification against primary sources (such as certificates, registrations, official state filings, etc.).
4. Analysis to identify inconsistencies (this consists of standard AML red flags, such as financial irregularities,  or lawsuits, including PEPs & sanctions findings or adverse media)
5. Reporting (this is a detailed summary with identified risks and recommendations for ongoing due diligence)

Skipping due diligence checks can expose the business to non-compliance fines and penalties, including other unwanted consequences, such as accidentally getting involved with a sanctioned individual or a fraudulent entity that hid its true ownership structure and illegal transactions. This can lead to money laundering, reputational damage, and operational disruptions with obvious financial losses. 

That’s why proper due diligence protects your organisation from fraud, legal exposure, and reputational risks. 

In general, no, but practice shows that a cheaper and more efficient option, especially for large companies that need to assess different clients and potential partners that are external, is third-party automation solutions. That’s because due diligence requires access to specialist databases, legal verification, multi‑jurisdictional records, and expert analysis; many companies outsource it to professional software that is then later used by their internal analysts. 

Some providers, like iDenfy, which offers identity verification and fraud prevention services, use such software as part of their work. That gives added assurance that IDs and regulatory credentials are verified accurately and the company follows a risk-based approach that is used throughout the whole relationship with the client, not just the pre-onboarding stage.