Due diligence VS Enhanced Due Diligence and how it affects everyone

Due Diligence 


Enhanced Due Diligence

The dictionary definition of Due Diligence is:

"reasonable steps taken by a person in order to satisfy a legal requirement, especially in buying or selling something." 

"a comprehensive appraisal of a business undertaken by a prospective buyer, especially to establish its assets and liabilities and evaluate its commercial potential"

What Due diligence is, however expands much further than that. It is the action performed by a company or person in order to understand and know as much as possible about something or someone.

As a private individual due diligence is performed regularly when making a large purchase, choosing a physician, or planning a vacation among many other decisions.
The amount of due diligence, the need for it and to what extent of due diligence that is performed can be subjective.

Due diligence can be anything from simply asking a question, web and trade publication research up to full background checks.

Initial Due diligence is dependent on several key components

1. Importance of the action to take place
This should speak for itself. How important is the action is to take place need to be viewed from personal and/or business perspective as well as statutory and regulatory guidelines and timelines.

2. Legal obligations regarding the amount of information necessary
Businesses more than individuals are governed by specific guidelines regarding the minimum amount of information necessary in order to enter into any type of relationship. On an individual level, consideration must be given to the acceptable amount that may be required in the advent of litigation to prove that a "reasonable" amount of diligence was completed. This is subjective and must be approached from an outside perspective of what may be deemed reasonable.

3. Legal limit of information you are able to obtain
This aspect, again is covered under hopefully clear legislation and regulated by various groups, bureaus and departments it is more
specific concerning a businesses and based on the entity type and the business conducted. For an individual however it is much more subjective.
How far can you dig.  When does the amount of information become unreasonable and cross the boundaries into breach of privacy and stalking

4. Place where the information is obtained
The source of the information obtained is extremely important, not only for the reliability of it, but the legality of sources used.  This is not referring to some shady character on the street, but to systems and methods used that go beyond public information and the permission necessary to obtain it.

5. How much information is needed
Depending on what due diligence is being conducted on,  this may include legal limits both minimum and maximum.  When there are not clear guidelines the "how much" needs to be measured according to risk.  How much information is needed in order to satisfactorily mitigate risk and when is it too much can be easily answered at times when the information is clear and readily available like annual revenues of public companies, or the amount of local competition.  The answer becomes more difficult when the information is not readily available like the number of employees a company has, or how many transactions someone is making overseas per month, thus presenting the possible need for Enhanced Due Diligence

Enhanced Due Diligence
Image result for personnel file

Enhanced due diligence is is exactly what it sounds like, and enhancement of due diligence.  Once a standard due diligence is established then the level of enhancement can be determined.
Enhanced due diligence typically included Knowing your customers customer, AML and fraud investigations, and direct information and documentation requests from the party you are dealing with.

Why everybody needs to know what it is:
EDD may be performed on a person or a business at any time.  Some of the laws that govern the processes are The US PATRIOT Act. and Bank Secrecy Act, as well as a multitude of other financial and banking laws, various state and local laws concerning sharing of information, privacy and public information laws also govern what can be obtained as does a persons consent.

Make sure you read disclosures for everything before you sign or agree to anything, you may be giving consent to unlimited amounts of people to obtain any or all of your information.