Due Diligence Risk Factors
Due diligence factors are the main issues that go into the risk assessment procedure for conducting a due diligence assessment. This process can be beneficial to a variety of stakeholders, such as acquiring firms looking to assess their potential partner prior to merger or an acquisition; investors who want an exhaustive assessment of risk prior investing; and prospective employees who are evaluating potential candidates for employment.
The process of due diligence may require a variety of different tests based on the purpose and scope. Checks include identity verification, screening of sanctions lists and criminal watchlists and an investigation into the funds origin. In addition an approach based on risk must be used to determine if enhanced due diligence (EDD) measures need to be applied. This is because clients who are at a higher risk of money laundering or financing terrorists require additional measures, including more frequent monitoring of transactions and the gathering of more information.
EDD can also involve analyzing the beneficial ownership of corporate customers to mitigate the risk of hidden ownership. This process can also include reviewing the structure of the company’s activities and identifying any connections with public officials which could lead to bribery and other corruption offenses. EDD should include a periodic review and update of the list of sanctions to ensure compliance.
A good due diligence process will provide a summary of most important findings for those who don’t have time to read the full report. The summary should be brief and include the type of due diligence that was completed (e.g. an extensive risk analysis prior to investing in a company) and the reasons for the due diligence, as well as any significant results.
