Due Diligence and Compliance: Understand the Relationship

Due diligence refers to the objective of analyzing in advance and conducting risk assessments of potential investments in partnerships and commercial transactions to ensure transparency and protection in these relationships.  

As previously mentioned, due diligence plays the role of assessing potential risks in transactions or partnerships. Therefore, it is precisely in this process that Compliance connects to Due Diligence, becoming one of its main pillars. This is because this process aims to protect and ensure that company standards and guidelines are followed.

Thus, it is possible to state that this process is essential so that your company does not remain vulnerable to risks such as scams and Money Laundering fraud, for example. Such acts can cause significant and irreversible damage, which is why many companies are already conducting Due Diligence as a way to investigate threats and prevent risks. 

What is Due Diligence?

The term Due Diligence means conducting an investigation process of a partnership opportunity and commercial relationship with another company. In this case, the investigation would take place as a way to evaluate and measure the potential risks of the relationship. 

This investigation ensures that the company your business relates to is compliant with protection standards and guidelines and anti-fraud measures of your security culture, and also that it is compliant with the Law and regulations necessary for the organization’s preservation. By guaranteeing this, it is possible to minimize threats to your company’s safeguard and transparency. 

How Due Diligence is Conducted 

The Due Diligence investigation process is done based on an analysis of the potential partner’s entire profile. In this sense, it is a duty to evaluate all aspects of the partner across various sectors such as accounting, financial, social security, labor, real estate, technological, criminal, compliance, and legal aspects of the company.

This occurs because by evaluating each of these areas in detail, it is possible to verify how the negotiating company behaves in each of them, checking every possible risk – if any exist. 

Types of Due Diligence 

With all the possible investigation variables of this process, there are also various types of Due Diligence that are specific to each investigated area. Check out the main types of Due Diligence!

• Criminal Due Diligence;
• M&A (Mergers and Acquisitions) Due Diligence;
• Compliance Due Diligence;
• Supplier Due Diligence;
• Tax Due Diligence;
• Third-Party Due Diligence.

Due Diligence and Compliance: The Relationship that Promotes Security

If we are talking about investigation and risk minimization through Due Diligence, it is imperative to relate this process to Compliance. Since, being the set of disciplines and norms that place the company in compliance with the Law, Compliance adopts and appropriates Due Diligence as another form of prevention against indications of risks and threats. 

You see, by performing Due Diligence, carefully analyzing the potential partner company, we are putting Compliance values into practice. In other words, such practice has as its main consequence and objective to strengthen transparency and security in the company, thus becoming part of the 10 pillars of a Compliance program.

The Advantages of Due Diligence for Your Company’s Compliance

In addition to ensuring security and transparency and minimizing threats, Due Diligence for Compliance has the main advantage of ensuring that the company continues to comply properly and correctly with the Law.

This is because there are laws that require various obligations for negotiations and that also check and impose the company’s adequacy to inflexible norms and rules. Such obligations, once not respected, can generate losses and even the closure of your company. 

Therefore, performing Due Diligence ensures compliance with Compliance and, with that, puts your institution in a safe position. That is, your company will not be vulnerable to any loss and deviation from norms and guidelines, as well as preventing your company from having its reputation damaged.

See also: Corporate Governance vs. Compliance: Understand the Differences 

Due Diligence is Not an Audit: Understand the Difference!

Although Due Diligence relates to Compliance, the investigation process is not convergent with auditing. In fact, both are quite distinct and are used for different purposes.

The Due Diligence process performs all types of analysis beforehand, that is, even before any contract is closed. Meanwhile, the practice of auditing has its role after the closing of this deal, becoming responsible for monitoring the progress of accounting issues.

In addition, Due Diligence has an analytical focus in search of more precise and exact results. That is, unlike the focus and duties of auditing, which only intends to generate samplings, results that do not need to be exact.

Due Diligence and Our Solutions: Strengthening Your Company’s Compliance

For us, it is highly necessary and important to help promote transparency, security, and scalability for your company. Therefore, we value and highly recommend the practice of Due Diligence, which can be optimized and simplified through our intelligent technologies.

Through our Background Check, it is possible to analyze in more detail the possible risks of partnerships and negotiations with partners. This is because we perform a sweep in more than 200 national and international data sources such as Watchlists, PEP identification, and adverse media. 

With this research, we can, in an automated way and in a few minutes, generate complete and detailed results that help minimize the risks of threats to your company. Finally, by having access to this detail about your partners before the final negotiation, you can verify and have a basis to make a decision that is qualified for your company and for its entire compliance. That is, making a more exact and appropriate decision for the protection and security of your institution. 

Want to know more about how to promote Due Diligence in an automated and more effective way? Access our website and check out our solutions!