LEGAL
How important is it to know with whom you’re doing business? You don’t have to look very far for the answer.
The multimillion-dollar Ponzi schemes and government fines you hear about are giving way to those with three additional zeroes! In response, organizations across the country and globe are beefing up their due diligence programs and investing heavily to comprehensively guard against large monetary outlays and reputational calamity. In fact, a Deloitte Development LLC survey published online in Corporate Counsel highlights “due diligence” as one of the main areas of focus and concern.
In which area do you expect your company will be making the most significant changes due to the new FCPA guidance?
So, if you’re a bank and considering implementing a new Customer Identification Program or an organization looking to shore-up your current vendor due diligence process, remember to keep these ten things in mind:
Rising regulatory requirements are increasing the responsibilities facing businesses as well as the consequences for mistakes. Most of the time, the costs of securing a comprehensive due diligence program is far less than some of the recent fines being levied by government agencies. Not to mention, having a defensible process in place can be of great benefit in the event of a lawsuit.
Knowing who you’re doing business with can protect the company, provide peace of mind, and help ensure trouble-free business operations. It can help a business better manage risk, prevent fraud and ensure smooth business relationships.
Effective due diligence involves a detailed investigation of business, financial, legal, and other records to create a complete account of a person or organization’s history. It identifies issues that could potentially impact their relationship with your business – such as whether they have ever been convicted of a crime or have other adverse filings, where they own property, and more.
Every day, businesses encounter a wide range of new, unfamiliar parties: prospective customers, vendors, partners, investors, acquisition targets, and more. Many of these will eventually lead to new productive and profitable relationships. However, they also open up new areas of risk and potential pitfalls.
Being well known or a “pillar of the community” is no longer good enough. In the past, people and organizations threw money at names like Madoff or Petters. These guys were philanthropists and “sure bets.” Not such a rosy topic for those who lost millions of dollars, or are being sued for as much, for not truly knowing who these guys were or what they were up to.
Different search techniques may yield vastly differing results. Knowing where to look and what to look for are critical. Finding the right information is no easy task ... it resides in a myriad of locations and formats. Names and other identifying information may be captured differently across records.
If you’re not demonstrating that your process is consistent across jurisdictions or timing, that’s an immediate red flag to federal regulators and you’re opening up your organization to further scrutiny and potential gaps in information.
The wealth of places where public and proprietary information are stored requires solutions that can access and search a wide range of data sources. Effective investigation thus requires both rigorous automated search tools and personal interaction with information specialists skilled in the nuances of search and information retrieval. Due diligence often involves searching through millions of records across hundreds of different data sources. Accuracy of documents must be verified. Information needs to be checked to ensure that it is current; new filings or changes in litigation status can occur at any time. It then needs to be organized and presented in a manner that’s easy to understand and analyze.
Circumstances can change quickly, and people need to be notified when new information becomes available. Due diligence is more than a series of singular, one-time events – it requires constant vigilance. Businesses need timely alerts to newly filed litigation or updates to ongoing litigation involving not only their own business, but also people and organizations of interest.
In addition to powerful digital and online tools, it is critical to utilize “boots on the ground” to conduct thorough investigations. With many jurisdictions still not fully digital, crossing “the last mile” for a critical piece of information can often be difficult in courts that still maintain primarily paper records.
Risks abound everywhere in today’s business world. Every new business relationship, whether with customers or vendors, is an opportunity to enhance the business, but also carries with it certain risks. Effective due diligence is an essential component of risk management to mitigate exposure to unwanted outcomes.
Reprinted with permission from the Association of Corporate Counsel 2016 All Rights Reserved
www.acc.com
http://www.acc.com/legalresources/publications/topten/ttttkimayccwortcbwaooi.cfm
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