04 Sep Due Diligence and Risk Factors

Due diligence involves assessing the risks and opportunities for an investor examining the property prior to buying it or an acquiring company examining the tax position of a prospective company before completing a merge. It is also essential to convey the results to everyone involved and ensure they know how to limit any liabilities.

Businesses and financial institutions conduct enhanced due diligence (EDD) on individuals and corporate clients to identify and evaluate the risk. In this type of investigation additional steps are made to confirm a customer’s identity and to determine the nature of transactions that are complex. These can include investigating the source and function of the money, examining connections with businesses, and assessing specific transactions.

This process typically involves the use of advanced technology and expert knowledge. For instance machine learning algorithms and artificial intelligence could aid in the due diligence process by automating document review and conducting predictive risk analysis. These technologies can also assist in identifying red flags read this and potentially suspicious activity by analysing vast amounts of data across various sources, including transaction history and adverse media reports and many more.

Another important aspect of EDD is the use of both external and internal resources to conduct a thorough investigation. Legal experts, accounting firms, and industry specialists are all able to examine the financial records of a company to determine accuracy and detect accounting irregularities. External verification is crucial, especially when evaluating complex transactions in highly regulated industries such as banking and finance.