Due diligence risk factors are the main issues behind the risk assessment that goes into the process of conducting a business due diligence exam. A wide variety of stakeholders can benefit from this process, including firms looking to assess their target firm prior to an acquisition or merger; investors looking for an extensive risk assessment prior investing; and employees evaluating possible candidates for employment.
The process of due diligence can involve a number of different checks depending on the intended use and scope. Checks include identity verification, screening of sanctions lists and criminal watchlists and an investigation into funds the source. A risk-based approach is also needed to determine whether enhanced due diligence (EDD), or other measures are required. Customers who are more at risk of money laundering and terrorist financing will require additional measures like more frequent monitoring of transaction patterns and gathering more information.
EDD can also include assessing the beneficial ownership of corporate clients to mitigate the risk associated with concealed ownership. This process can also include studying the structure of a company’s activities and identifying any possible relationships with public officials that could lead to bribery and other corruption offenses. EDD should also conduct a regular review and updating of the list of sanctions to ensure compliance.
A successful due diligence process will provide a concise summary of key findings for those who don’t have the time to read a complete report. The summary should be brief and include the type of due diligence completed (e.g. an exhaustive risk analysis prior to investing in a company) and the reasons for the due diligence, as well as any significant results.