Due diligence risk factors are the primary issues behind the risk assessment that is the basis of conducting a business due diligence examination. A wide variety of stakeholders can benefit from this process, such as companies looking to examine their potential target prior to the merger or acquisition and investors who want a thorough risk assessment before investing; and employees evaluating the potential candidates for employment.
Due diligence can include a variety of different checks based on the intended use and scope. Checks include identity verification, screening of sanctions lists and criminal watchlists, and an investigation into funds sources. A risk-based approach is necessary to determine if increased due diligence (EDD), or other measures, are needed. This is because customers who pose a higher risk of money laundering or terrorist financing need additional measures, such as the monitoring of transaction patterns and the gathering of more information.
EDD can also involve analyzing the beneficial ownership of corporate clients to minimize risks associated with concealed ownership. The process could also involve examining the structure of the company’s activities and identifying any affiliations with public officials that could cause bribery or corruption-related offenses. Additionally, it is crucial that EDD includes periodic reviews of the sanctions lists for international countries to ensure compliance with regulations.
A thorough due diligence process will provide a summary of the most important findings for those who don’t have time to read the full report. The summary should be concise, and should include the type of due diligence that was conducted (e.g. the complete risk assessment before an investment in a company) and the reason behind the due diligence; and any important results from the due diligence.