Due Diligence regulation

Usually, performing DD of a company in Europe or America begins with identification, in which key information is requested from a potential client or 3rd party (often through a simple survey questionnaire). Schematically, this process looks as follows:

• Identification.
• Check.
• Risk assessment.

Normally, DD of a legal entity in the EU or US involves providing statutory documents, detailed information about the founders & beneficiaries, corporate structure, BoD, political affiliations & official recommendations, etc. At this stage, the DD procedure may also require notarization of the company's documents.

DD of an individual in the US or EU normally requires providing sufficient proof of identity, information about the source of income & origin of funds & possible political affiliations (depending on the intended type of activity).

In the next step, the names of companies, individuals, NPOs & other entities will be checked against the global sanctions lists. Also, the lists of law enforcement agencies & regulators containing names of wanted criminals, banned or disqualified companies & individuals will be checked. 

At this stage, lists of PEPs are checked to identify possible government or official affiliations. This process is usually automated & involves processing thousands of records simultaneously. Based on the information obtained during the identification process & processing of the above lists, an assessment of the respective risks is made. While conducting DD of an acquisition target in the EU or US, factors such as the country of origin, experience in combating crime & other risks are usually considered. 

The risks associated with the industrial sector are also assessed:

• if the sector is susceptible to government interference & thus prone to corruption; 
• if the sector is dependent on a network of local agents & thus exposed to bribery. 

The type of organization (e.g. a charitable foundation or offshore trust with a higher risk of money laundering) will also be considered. .

Important factors, such as financial risks, salary payment methods & internal anti-corruption rules, will also be taken into account. After assessment of the risks of an M&A deal in Europe or America, the information received is compared with the data received from the client, and a check for hidden risks is carried out.