The term “Due Diligence” is widely used to describe the standard of care a person or business entity should take to protect themselves when entering into a relationship, whether that be a marriage, a business arrangement, extending a loan or employing somebody.
There are several reasons one might need to conduct due diligence, apart from the obvious personal or business risk management. In some cases due diligence is a legal requirement – for example:
- Allowing a person or company to open a bank account or online payment facility
- Extending a loan or large amount of credit to a person or company
- Merging with, or acquisition of, another company
- Entering into a Joint Venture arrangement with another company
- Appointment of a Company Director
- The employment of a person who would be in charge of children (in many countries)
- The employment of a person with major financial or managerial responsibilities
- The employment of a person in a security position
- Almost any relationship if you are politically or publicly at risk yourself – as an organisation or individual
Thorough and comprehensive due diligence would uncover the relationships already held by the entity being investigated. For example, a person’s education and employment history might be verified, their local reputation within their industry or neighbourhood may be sought from their peers in their local language, their name could be checked against a number of watch-lists such as international sanctions lists, criminal watch-lists such as those maintained by Interpol, the CIA, FBI, the US Office of Foreign Assets Control (OFAC) as well as various Treasury and United Nations databases. If they already have links to any of the following crimes, these could be uncovered during the course of due diligence:
- Arms Trafficking;
- Human, Stolen Goods and Migrant Smuggling;
- Money Laundering;
- Organized Crime;
- Registered Sexual Offences
- Terrorism & Terror Financing.
In addition to this, a real estate search might be conducted, or a directorship and shareholding search to see what assets they already hold or are connected to. Family relationships may also be investigated – perhaps they have links to politically exposed persons (PEPs) which may be significant, or there could be media searches conducted to discover whether they already have adverse media published around them, their family members or their company.
So, an investigation into a person could be extremely in-depth, or it may just involve a simple identity verification, conducted electronically in a fraction of a second – just to verify that the identity number and/or address they provide matches their record.
With regards to due diligence on companies – the directors, shareholders and senior managers may all be subject to the above checks when a company is investigated. In many countries, even court records can be searched and details obtained of any cases involving the subject individual or company. Also, relationships to other companies could be established so that the ultimate beneficiary owners could be identified, and these may then also be subject to scrutiny to ensure peace of mind for those trading with the company.
So whether you need to KYC (know your customer), conduct AML (anti-money laundering) checks, stay legally compliant or just want to sleep well at night and are not entirely sure which type of due diligence report you really need – contact our Client Services Team on firstname.lastname@example.org or check out the pdfs available to download from the Solutions section of our website at www.cedar-rose.com which detail the content of each type of report.
Cedar Rose specialises in due diligence for the Middle East and North Africa.
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Increase your knowledge of due diligence and understand what the risks are if not reported correctly by reading our article on cyber crime here.
Written by Christina Massaad, Managing Director
*** The sole purpose of the article above is to generate public discussion, it has no intention to constitute legal advice. ***
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