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Transaction Forensics: The Scope Of A Comprehensive Integrity Due Diligence

The place of integrity

Business relationships are frequently commenced (and terminated) every day around the world: mergers, acquisitions, joint ventures, management buyouts, vendor engagements, outsourcing of business services – the list goes on and on. The main reason for commencing such relationships is not far-fetched. To compete effectively in today’s business world, it is necessary for businesses to partner with other individuals and businesses that possess business value, influence and/or experience, which can improve or add value to their own operations.

It is typical for potential business partners to enquire into the affairs of one another, usually prior to the start of the business relationship. In practice, the more strategically placed party performs due diligence procedures on the other party (or parties, as the case may be). Strategically placed in this context could be in terms of financial strength, country/region, reputation and goodwill, industry, and/or extent of regulation. Due diligence should inquire into key aspects of the operations of the subject (the entity on which due diligence is to be carried out). Thus, a comprehensive due diligence would cover the technical, financial, reputational, and legal operations of the subject.

Integrity due diligence, otherwise known as reputational due diligence, is one of the most important aspects of due diligence to be considered when deciding on whether to commence (or continue) a business relationship. This is necessary for many reasons. Firstly, integrity due diligence would show the nature of the subject by disclosing prior instances of fraud or illicit activities (if any) by the subject and/or its officers. Every business wants to avoid preventable financial losses, including losses due to fraud perpetrated by business partners, so that would be valuable intelligence. For instance, a party to an oil mining joint venture would be genuinely concerned if the Managing Director of the operator of the joint venture was a previously convicted fraudster, wouldn’t it?






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