Due Diligence Risk Factors

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Due diligence is a crucial process that allows businesses to make informed choices and minimize risks. It covers commercial, financial and legal issues. Due diligence may cover factors like a company’s concentration of customers, the existence or legal or regulatory disputes and the extent to which intellectual property has been cultivated.

One of the most important aspects of due diligence is fact verification, a thorough method of checking information to ensure that it is genuine and authentic. This involves looking over documents, checking data, and cross-checking it and confirming the identity of parties.

A business should update regularly its due diligence on current activities, projects, and business partners. The frequency of these updates varies on the level risk of the country, project, or business partner. In high-risk areas it might be beneficial to review due diligence at least once every two years.

Enhanced due diligence (EDD) which goes beyond CDD and identifies red flags like the presence of politically exposed people (PEPs), or a history money laundering or corrupt practices. This may include screening against lists of PEPs from law enforcement agencies like the U.S. Federal Bureau of Investigation or the UK National Crime Agency.

EDD also involves identifying the nature of the relationship and any involvement from a third party for example a supplier that has contact with customers in a specific jurisdiction would have to be scrutinized more rigorously than an employee of a client firm. Businesses should also be able to review their own due diligence results and decide to take action if they find that there are any new or increased risks.