Due Diligence Risk Factors

Due diligence risk factors are the primary factors that forms the basis of conducting a business due diligence exam. The process is beneficial to a range of stakeholders, including acquiring firms looking to assess their target firm before a merger or an acquisition; investors seeking a thorough analysis of risk prior to investing; and prospective employees assessing possible employment candidates.

Due diligence can involve different types of checks according to the purpose and the scope of the process. The checks include identity verification, screening of sanctions lists, criminal watchlists as well as an investigation into the funds’ source. In addition an approach based on risk must be employed to determine if enhanced due diligence (EDD) measures need to be applied. This is because clients who are at an increased risk of laundering or terrorist financing need additional measures, for example, more frequent monitoring of transactions and the gathering of more information.

EDD can also include assessing the beneficial ownership of corporate customers in order to reduce the risk of hidden ownership. This process can also include looking at the structure of the company’s business operations and identifying any affiliations with public officials that could result in bribery or other corruption crimes. Additionally, it is essential that EDD includes regular reviews of the sanctions lists for international countries to ensure compliance with the regulations.

A thorough due diligence process will provide a summary of the important findings to those who don’t have the time to read the entire report. The summary should be brief and should contain the kind of business due diligence conducted (e.g. an extensive risk assessment prior deciding to invest in a company) and the reason behind the due diligence; and any important results of the due diligence.

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