Due diligence is about evaluating the risks and opportunities, whether it’s an investor checking out a property before buying or an acquiring company examining the tax status of the target company prior to completing a merger. It’s also about effectively communicating results to all stakeholders and making sure that everyone knows how to minimize any liability.
Financial institutions and businesses conduct enhanced due diligence (EDD) on individuals as well as corporate clients to identify and evaluate risk. This type of investigation requires additional steps to verify the customer’s identity and to investigate the nature of complex transactions. These additional steps can include looking into the source of the money, analyzing business relationships and analyzing the reason for particular transactions.
This process is usually an amalgamation of modern technology and expert expertise. For instance machine learning algorithms and artificial intelligence can aid in the due diligence process by automating document review and conducting predictive risk analysis. These technologies can also assist in the identification of suspicious activity by analyzing vast quantities of data from various sources, including transaction histories, adverse media reports, and more.
An in-depth investigation is an important aspect of EDD. This is accomplished through both internal and external resources. Legal experts, accounting firms as well as industry experts can all look over financial records to verify the accuracy of the data and spot accounting irregularities. External verification is essential, especially when evaluating complex transactions in highly regulated industries like finance and banking.