The due diligence condition: due diligence checks
The notices referred to in EDDC02020 provide detailed examples of risks and the checks which the registered business could carry out to help them test the integrity of their supply chains and transactions. It is not meant to be a definitive list. HMRC’s policy is not to provide a definitive list as fraudsters and those wishing to turn a blind eye could quickly alter their operations to comply with tests or provide convincing records to fool such tests. In addition, not all transactions would require the same level of testing. A set list may either place an unnecessary burden on businesses, where such checks are not relevant, or be ineffective in spotting fraud in cases where more robust checks are required.
Generally speaking, the registered person’s due diligence checks should fall into the following general “fitted” categories:
- financial health of the company by obtaining credit checks or other background checks from an independent third party where necessary
- identity of the business they are trading with by obtaining letters of introduction, establishing the general visibility of the company and confirmation of Companies House and HMRC approval details etc
- terms of any contracts, payment and credit agreements - these should normally be considered before the registered person enters into any agreements
- transport, such as details of the movement of the goods involved and from where the goods are being sourced
- existence/provenance of goods, where goods are said to be duty paid the registered person should seek sufficient detail to satisfy themselves of the goods’ status
- the deal, the nature of the transaction itself, including:
- why is it being offered
- is it too good to be true?
- where is the demand for the goods? If they have come from abroad but are of UK origin, how did this happen? If the demand is purportedly from abroad, what is the real market for those goods in that country?