Due diligence risk factors are the underlying aspects of the risk assessment that is the basis of conducting a due diligence exam. A wide range of parties can benefit from the process, including acquiring companies that want to study their target firm prior to a merger or acquisition and investors who want an extensive risk assessment prior investing; and employees evaluating potential employment candidates.

Due diligence may require a variety of different checks depending on the purpose and the scope. Typical checks include identification verification and screening against sanctions lists and criminal watchlists, and an investigation into the sources of funds. A risk-based approach is also needed to determine if enhanced due diligence (EDD), or other measures, are needed. This is because customers who have an increased risk of laundering or terrorist financing need additional measures, like the monitoring of transaction patterns and the collection of more information.

EDD can also include assessing the beneficial ownership of corporate clients in order to reduce the risk associated with concealed ownership. The process can include examining the company’s structure and identifying any connections with public officials which could result in corruption. Additionally, it is vital that EDD includes regular reviews of international sanctions lists in order to ensure compliance with the regulations.

A good due diligence process will provide a summary of most important findings for those who aren’t able to read the full report. The summary should be brief and include the type of business due diligence performed (e.g. an extensive risk assessment before an investment in a company) and the reason behind the due diligence; and any important conclusions derived from the due diligence.

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