The due diligences are “about the economic, commercial, industrial or financial environment” to “protect themself against risks that threaten their business, their heritage, their intangible assets or reputation” and “to promote their business by influencing business developments or decisions of public or private persons “.
Source: National Assembly LOPPSI Act 2
Roman law concept of Caveat Emptor (“the buyer beware”).
Due Diligence: Investigation involving the use of experts, including accountants, financial, legal or tax whose findings form the basis for the decision of an investor.
See also: duty of care.
Due Diligence: Set of legal requirements which impose on credit institutions and any person raising funds, controls aimed at identifying interlocutor and origin of its resources.
The due diligence process is an essential step in the validation of an opportunity for a business.
As such, it is fully integrated into the cycle of economic intelligence, as an instrument of standardized measuring risks and opportunities.
It is an essential decision-making tool at strategic and operational levels in an organization, and contributes to the identification, measurement and control of internal and external risks of the company, through its decisions and external organic growth.
Investment decisions, misjudgments and blindness are not allowed in economics and finance for several reasons:
The actual cost and the induced costs of a bad decision (60% of acquisitions mergers end in failure)
The systemic consequences for the economy:
Subprime loans without any control on the part of banks and real estate credit agencies US.
Blindness general, including the US regulator, before the Madoff scandal broke.
The internationalization of trade, particularly with non-OECD countries (“emerging”), with little reference standards, social, legal, ethical.
The existing or futur legal environment imposes to economic actors, financial or otherwise, to govern their decisions on the basis of operational due diligence or advanced (enhanced due diligence)
The Foreign Corrupt Practices Act (FCPA) American and the OECD Convention on the fight against corruption are the two largest references of anti-corruption legislation.
In France these texts have direct consequences for listed companies in the United States or registered in one of the countries that have adopted laws based on the OECD Convention.
The documents are similar and both prohibit bribery of foreign officials, directly or through third parties, in order to obtain or retain business. These laws require companies to exercise greater vigilance and perform due diligence before hiring key staff, or contractors.
The texts also serve as an important framework for the realization of a due diligence, they prohibit the bribery in order to obtain information about an investigation.
Download the text: fcpa-french
“Programmes or measures of ethics and compliance to prevent and detect foreign bribery subject to contractual arrangements, third parties, such as agents and other intermediaries, consultants, representatives , distributors, contractors and suppliers, partners in consortia and joint ventures (“Business Partners”) including, among others, the following essential elements:
Source : www.oecd.org
The Foreign Corrupt Practice Act is a US law since 1977 but little used until the 1990s.
The FCPA governs the codes of conduct for US and foreign companies in terms of access to foreign markets and fight against corruption of American states agents and / or third countries.
It provides sanctions for non-US companies that could enter a market in a third country through corruption of public officials.
Some European players complain about the rigidity of the FCPA (limited to € 70 gifts, etc.), including the views of current practices in some countries to gain access to public or private markets.
The FCPA therefore imposes a duty of care for US companies, non-US, third country agents, suppliers, etc.
The Foreign Corrupt Practice Act is a US law since 1977 bu seldom used until the 1990s.
The FCPA governs the codes of conduct for US and foreign companies for access to foreign markets and fight against corruption of American states agents and / or third countries.
It provides for appropriate sanctions for non- US companies that could enter a market in a third country through corruption of public officials.
Some European players complain about the rigidity of the FCPA ( limited to € 70 gifts, etc.), including the views of current practices in some countries to gain access to public or private markets.
The FCPA therefore imposes a duty of care for US companies, non -US, third country agents, suppliers, etc.
Declaratory or investigative ?
The best environment to establish a due diligence is probably a balance between investigative and declarative, as part of a process of collection and analysis :
Areas of major risks in partnerships or joint ventures are especially those involving foreign partners, hidden defects, misunderstandings, differences and ulterior motives, or failure to comply with applicable laws.
Any of these elements can lead to a difficult and costly conflict, which may result in termination of the agreement, partnership or merger, and the potential liability of the company is engaged.
National laws sometimes require a principal “sponsor” local partnership operates and holds a majority stake.
Partnerships and joint ventures with offshore companies also require special precautions.
Risks can occur for various reasons. In some business circles corruption is endemic.
An activity deemed inappropriate by the exporting firm from a partner may, in certain circumstances, exposing others to risk.
The mutual ignorance of company policies often are the source of counterparty risk.
Risks can occur for various reasons. In some business circles corruption is endemic.
An activity deemed inappropriate by the exporting firm from a partner may, in certain circumstances, exposing others to risk.
The mutual ignorance of company policies often are the source of counterparty risk.
The implementation of an operational and strategic due diligence resembles a Commando Operation:
The process must also take into account the associated risks.
Deployment of your due diligence process :
What can be validated with a due diligence :
It would be a mistake to take into account only target’s performances (or mistakes) of the past and not its present or future opportunities (or weaknesses).
The Red Flags operations are unlikely to be discovered until contract’s signature and supply of goods or services.
They should not be considered “acquired”, but in terms of trading potential (price, conditions) or disposal activities with the counterparty:
Offshore companies are usually defined as companies registered in other countries than their principal business place.
Many recognized offshore centers does not require the official submission of lists of shareholders or directors or, if a file requirement exists, no public access to the lists is given.
In most cases, local laws on banking secrecy reinforces the lack of transparency inherent in the recording of government systems in these countries.