When some attorneys consider “due diligence,” they image packing containers and packing containers of contracts, monetary information, and different paperwork that must be reviewed earlier than getting into right into a transaction. It won’t be a enjoyable course of, particularly for junior associates at massive legislation companies, however it’s a essential one.

Due diligence typically focuses on the monetary, but it surely goes properly past the numbers. And this present day, modern know-how has made due diligence a a lot quicker, simpler, and extra correct course of — a far cry from when it concerned pawing via dusty paperwork in a windowless convention room.

A vital a part of the due diligence course of at the moment is integrity due diligence (“IDD”). This course of exceeds the scope of strictly monetary issues, however is not any much less vital.

“If an organization is making an attempt to conduct enterprise in a brand new nation or completely different market, this firm might need to depend on exterior third events, resembling sub-contracted workers, distributors, or joint-venture companions,” defined Victor Padilla, a director with RSM US LLP. “To keep away from potential reputational injury, the corporate must guarantee that these third events are conducting enterprise in applicable methods, which is what IDD is all about.”

“The concept of conducting due diligence and third events isn’t new,” noticed Greg Naviloff, additionally a director with RSM. “For instance, for those who’re doing enterprise with one other entity, you wish to make sure that they’ll pay you. So that you do your due diligence on that entity upfront to study their cost historical past with different companies, and decide if you wish to do enterprise with the entity earlier than you signal an settlement.”

However at the moment, integrity due diligence issues greater than ever. A part of that is due to the elevated emphasis on compliance within the wake of the Nice Recession, the Dodd-Frank Act, and its give attention to correct company governance. And a part of that is due to ramped-up enforcement of anti-corruption legal guidelines — not simply the U.S. Overseas Corrupt Practices Act, however newer laws from world wide, in international locations starting from the UK to Mexico to China to Brazil.

Integrity due diligence is a fancy and multifaceted course of, as Naviloff informed me. A few of the associated questions you wish to ask embrace: “Has the third social gathering been in hassle with the legislation earlier than? Has it been accused of corruption? Does the group have an anti-corruption program? In that case, how sturdy is this system? The solutions to those and different questions would possibly drastically change the way you do enterprise with a 3rd social gathering — or whether or not you do enterprise with them in any respect.”

There are numerous ranges of IDD that may be performed relying on the danger, starting from a fundamental verify or screening primarily based on free public databases to extra developed diligence utilizing proprietary instruments and discreet supply inquiry. And on this age of Huge Knowledge, analytics can be utilized to streamline and improve the method.

“We had a shopper coping with a high-profile case involving funds to an organization,” stated Padilla, offering an instance of his firm’s work within the space. “As we began making use of analytics to transactions round this firm, we began figuring out funds that didn’t appear to be instantly linked to the corporate’s acknowledged enterprise goal. After we began seeing donations to rugby sports activities golf equipment, movie festivals, and different actions seemingly unrelated to the core enterprise of the corporate underneath evaluation — funds totaling thousands and thousands of {dollars} — the analytics led us to take a more in-depth take a look at the recipients of those funds, which subsequently resulted in vital findings throughout the context of the due diligence.”

Analytics may help with integrity due diligence in different methods as properly. For instance, as Naviloff informed me, analytics may help an organization prioritize and rank which investigative strategies it ought to use for conducting IDD, in addition to which entities to topic to increased scrutiny.

Lastly, as Naviloff underscored, “IDD just isn’t a ‘one and carried out’ course of. It includes continuous screening of third events with whom you have got ongoing relationships, together with monitoring and watch lists.”

Integrity due diligence will be performed on many alternative ranges and in many alternative methods. It can fluctuate relying on such components because the nation, trade and firm concerned. However one factor is definite: given the authorized, regulatory, and reputational dangers going through firms at the moment, inaction just isn’t an choice.


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