Due diligence risk factors are the main aspects of the risk assessment that is the basis of conducting a business due diligence exam. A wide range of stakeholders can benefit from the process, including companies looking to examine their target firm prior to a merger or acquisition and investors who want an accurate risk assessment prior to investing; and employees assessing the potential candidates for employment.
Due diligence can involve various checks, dependent on the purpose and scope of the process. Checks include identity verification, screening of sanctions lists, criminal watchlists, as well as an investigation into funds sources. In addition an approach based on risk must be used to determine whether enhanced due diligence (EDD) measures should be applied. Customers who are at greater risk of the financing of terrorists and money laundering will require additional measures such as increased monitoring of transactions patterns and gathering more data.
EDD can involve analyzing beneficial ownership of corporate clients to minimize the risk of hidden ownership. The process may also involve looking at the structure of the company’s activities and identifying any connections with public officials that may result in bribery or other corruption-related offenses. EDD should include a periodic review and updating of the list of sanctions in order to ensure compliance.
A successful due diligence process will provide a concise summary of the key findings for those who don’t have the time to read the full report. The summary should be concise and include the kind of business due diligence that was conducted (e.g. the complete risk assessment prior to investing in the company) and the reason behind the due diligence; and any important results from the due diligence.