Due diligence is about evaluating the risks and potentials, whether it’s an investor checking out the property prior to buying it or an acquisition company looking into the tax status of a target company prior to completing a merger. It is also important to convey the results to all stakeholders and ensure they know how to limit any liabilities.
Businesses and financial institutions conduct enhanced due diligence (EDD) on individuals as well as corporate clients to determine and assess the risk. This type of investigation involves additional steps to verify the customer’s ID and investigate the nature of transactions. The additional steps could include looking into the source of the funds, investigating business connections and evaluating the motive behind specific transactions.
This process typically involves the combination of cutting-edge technology and expert knowledge. Machine learning algorithms and artificial intelligent can simplify due diligence process by automating document reviews and conducting prescriptive risk analyses. These tools can help you identify suspicious activity, and other information through the analysis of large amounts data from a variety sources including transaction histories or negative media reports etc.
Another important aspect of EDD is the use of internal and external resources to ensure a thorough investigation. This could include experts in legal as well as experts from the industry and accounting firms who can review the financial records of a business and verify their accuracy and detect accounting irregularities. External verification is especially important when evaluating complex transactions and highly regulated industries such as banking and finance.
