Due diligence elements are the fundamental issues that are incorporated into the risk assessment procedure for conducting a due diligence exam. This process can be beneficial to a range of stakeholders, from acquiring companies looking to evaluate their target firm before a merger or acquisition; investors who want an in-depth assessment of risk prior investing; and prospective employees who want to evaluate potential candidates for employment.
The process of due diligence can include a variety of different tests based on the purpose and the scope. Checks include identity verification screening of sanctions lists and criminal watchlists as well as an investigation into funds origin. Additionally a risk-based approach should be used to determine whether enhanced due diligence (EDD) measures need to be implemented. This is because customers who pose a higher risk of money laundering or financing terrorists require additional measures, including more frequent monitoring of transactions and the collection of more data.
EDD can also include assessing the beneficial ownership of corporate customers to limit risks associated with concealed ownership. The process could also involve reviewing the structure of the company’s business operations and identifying any possible relationships with public officials which could result in bribery or other corruption crimes. EDD must also be able to conduct regular reviews and updating of international sanctions lists in order to ensure compliance.
An effective due diligence process should provide a clear summary of the key 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 that was carried out (e.g. thorough risk analysis prior to investing in a business) and the reasons for the diligence, and any significant results.