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The backbone of any private or corporate security program is due diligence: due diligence on any person, corporation or entity with which you are considering interacting is not only common sense, in some cases it’s the law.
Due diligence is anything from checking references of a contractor to a full evaluation of a financial institution. A public corporation which enters into a business transaction without first performing due diligence on everyone and everything involved can incur serious liability if something goes wrong and the corporation and its stockholders are harmed. The liability can be civil, criminal or both. A bank or other financial institution failing to adequately check out a new customer will incur civil and possibly criminal liabilities if a wrongful act is committed by that customer.
Public corporations have similar responsibilities, although under different laws and regulations, as do private companies. “Best Practices,” “Standards of Due Care” and “Duty of Oversight” are not common terms, but corporate legal and compliance officers need to know them and understand the ramifications of not following them.
Due diligence must be conducted by individuals contemplating investment in anything from foreign exchange trading to a used car. Every year untold amounts of money worldwide are scammed by unwary investors or buyers. The Department of Justice estimated that in 1998, $40 billion was lost in America to telemarketing scams alone.
Due diligence applies to investigating not only the legal and business backgrounds of individuals and corporations, but also of instruments and legal or financial structures relevant to a business transaction or venture. Levels of liability or risk as well as complexity of the business, number of entities involved and applicable laws and regulations all help determine the extent to which due diligence should or must be done.
While there are numerous software programs and companies available on the internet and elsewhere which purport to provide the best and most comprehensive research, the truth is that due diligence is an art as well as a science.
Even former law enforcement professionals may not have the requisite personal or business experience to effectively research the subject. Public records are unreliable, and although they are adequate guides, cross-referencing must be done whenever using them. There is simply no substitute for experience and skill when conducting due diligence.
Part of the art of background research is in knowing how many and what resources to draw from, knowing how to do things discreetly, and what privacy laws are applicable. The performance of due diligence carries its own liabilities and responsibilities. Failure to act accordingly can cost as much as the trouble one seeks to avoid.
Thorough, professional due diligence of the kind investors or corporations should or must do can range from $250 to $25,000, depending upon the situation. But - the cost of not doing it, or not having it done properly, is exponentially greater.
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