Due diligence risks are the fundamental issues behind the risk assessment that is the basis of conducting a due diligence exam. This process can be beneficial to a broad range of stakeholders, including acquiring companies seeking to examine their potential partner prior to merger or acquisition; investors looking for an in-depth evaluation of risk prior to investing; and prospective employees who are evaluating potential candidates for employment.
The process of due diligence can include a variety of different checks, based on the purpose and scope. Checks include identity verification screening of sanctions lists and criminal watchlists, as well as an investigation into funds’ source. Additionally a risk-based approach should be employed to determine if enhanced due diligence (EDD) measures need to be applied. Customers who are more at risk of financial crime and money laundering will require additional measures like an increased monitoring of transactions patterns and gathering more details.
EDD can also include assessing the beneficial ownership of corporate customers in order to reduce the risk of hidden ownership. The process may also involve reviewing the structure of the company’s activities and identifying any affiliations with public officials that may cause bribery or corruption crimes. In addition, it’s crucial that EDD includes regular reviews of international sanctions lists to ensure compliance with the regulations.
A well-run due diligence process will provide a summary of principal findings to those who aren’t able to read the entire report. The summary should be brief and include the type of due diligence that was conducted (e.g. the complete risk assessment prior to investing in a company); the reason for the due diligence; and any important results of the due diligence.
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