Third Party Due Diligence

Compliance & Risk Consulting Group LLC

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Each day your business is exposed to third-party risk from suppliers, vendors, agents and partners. Do you really know who you are doing business with and the risks they present?

To address this risk, all business owners – regardless of size – need to perform due diligence (DD) on their commercial partners to confirm they pose no threat of corruption or misconduct that could bring liability back to your business. As it is not always possible to eliminate risk entirely, DD is designed to bring sufficient assurance about a counterparty to reduce the potential for harm to an acceptable level.

Why Due Diligence Reviews Are Necessary

Failure to perform proper DD can cause your business all sorts of trouble.

For example, if you don’t perform DD on a software vendor, and the vendor is insolvent and shuts down, and the software goes fubar, your business may be unable to perform mission-critical tasks.

Likewise, government regulators expect businesses to take prudent steps to reduce the risk of dealing with counterparties violating the law. Government regulators are fond of saying that they do not expect your DD process to “boil the ocean,” but they will hold your business accountable if you have not implemented a risk-based DD process to identify problematic counterparties.

In addition, business executives who fail to perform adequate DD risk fines and jail time. In the 1990s, Frederic Bourke learned this the hard way when a jury found that he “stuck his head in the sand” by ignoring legal advice regarding the corruption risks with an investment in Azerbaijan. Bourke was sentenced to a year and a day in federal prison.

Types of Due Diligence

An experienced compliance consultant will ensure that your DD process is properly scoped to the geographic and business risks associated with your transaction. For example:

In an anti-corruption review, DD focuses on identifying the true owners and management of the target business, to determine if they are “politically exposed persons” (PEPs) aka government officials or their relatives. The review should also try to find any prior brushes with corruption the target might have had.
In a trade sanctions review, DD focuses the geographic area where products are acquired or sold, to determine if there is a risk of a transaction with a sanctioned country or a specially designated national (SDN) aka a sanctioned party.

Our Approach

Following a risk assessment of your business, C&R works closely with you to develop a customized and cost-effective DD process designed to ensure that your business stays out of regulator’s crosshairs and avoids entanglements with unsavory counterparties.

If you have an existing DD program, C&R provides the resources and experience to effectively evaluate your program and determine if it is fit-for-purpose to address the specific risks associated with your operations and locations.

C&R can also assist in evaluating red flags that arise in the course of your DD process. We offer multiple levels of enhanced due diligence and analysis to align with each client’s unique risk-tolerance—from compliance with anti-bribery/anti-corruption (ABAC) and anti-money laundering/know your customer (AML/KYC) regulations to complex investigations of strategic partnerships and investments.

Key Factors to Consider When Choosing a Due Diligence Consultant

Here are some important factors for your evaluation of DD consultants:

Does the consultant have a proven track record working on the ground across multiple jurisdictions? Their experience in your areas of operation and understanding the local customs can be a critical factor in uncovering potential risks.
Evaluate their approach to your DD project. Do they employ a one-size-fits-all approach or insist on the use of high-cost investigative firms to vet every counterparty? Good DD consultants will tailor their recommendations to your specific needs and can adapt to changing circumstances during the DD process.
If you are hiring a consultant for a specific project, ask how they plan to communicate findings and whether they can provide a privileged report that is covered by the attorney-client communication privilege. Clear, concise, fact-based reporting is essential for informed decision-making.
DD often involves sensitive information. Do they have a track record of handling sensitive matters with utmost discretion?

We offer a practical, cost-effective compliance & risk solutions to ensure your business does not run afoul of US, UK and EU compliance laws.

Compliance & Risk Consulting Group LLC

Compliance & Risk Consulting Group LLC