Due Diligence Risk Factors
Due diligence elements are the fundamental issues that are incorporated into the risk assessment process used for conducting a due diligence assessment. A wide range of stakeholders can benefit from the process, such as firms looking to assess their potential partner prior to the merger or acquisition; investors looking for an accurate risk assessment prior to investing; and employees assessing potential employment candidates.
Due diligence can include various types of checks dependent on the purpose and scope of the procedure. The most common checks are identification verification, screening against sanctions lists and criminal watchlists. They also include an investigation into the source of the funds. A risk-based approach is needed to determine if enhanced due diligence (EDD), or other measures, are needed. This is because clients who are at greater risk of laundering or financing terrorists require additional measures, including the monitoring of transaction patterns and the collection of more information.
EDD can also include assessing the beneficial ownership of corporate clients to minimize risks associated with concealed ownership. The process could also involve studying the structure of a company’s activities and identifying any possible relationships with public officials which could lead to bribery or other corruption crimes. EDD should also be able to conduct regular reviews and updating of the sanctions lists for international countries in order to ensure compliance.
A successful due diligence process will provide a concise summary of the main findings for those who do not have the time to read the full report. The summary should be brief and include the type of due diligence completed (e.g. thorough risk analysis before investing in a company) as well as the rationale behind the due diligence, as well as any significant findings.
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