Due diligence factors are the underlying issues that go into the risk assessment process for conducting a due diligence exam. The process is beneficial to a variety of stakeholders, such as acquiring firms seeking to assess their potential partner prior to merger or an acquisition; investors who want a thorough assessment of risk prior investing; and prospective employees assessing possible employment candidates.
The process of due diligence may require a variety of different checks, based on the intended purpose and scope. Typical checks include identity verification, screening against lists of sanctions and criminal watchlists, as also an investigation into the source of funds. Additionally, a risk-based approach must be used to determine whether enhanced due diligence (EDD) measures should be applied. This is because customers who pose a higher risk of money laundering or financing terrorists need additional measures, including more frequent monitoring of transactions and the collection of more data.
EDD can also involve analyzing the beneficial ownership of corporate customers to mitigate the risk of hidden ownership. The process can include examining the structure of the company, and identifying any possible connections with public officials that could lead to corruption. Additionally, it is essential that EDD includes periodic 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 principal findings to those who don’t have time to read the full report. The summary should be concise and should contain the kind of business due diligence performed (e.g. thorough risk assessment prior deciding to invest in an organization) as well as the rationale behind the due diligence; and any significant results from the due diligence.