Pia Vining on due diligence: Automation is useful but human judgment is indispensable
Wednesday, April 18, 2018 at 8:28AM
Pia Vining in Due Diligence, Trace International

Brad Gates (“Is third party due diligence a commodity?”) and Scott Shaffer (“Due diligence will always be a human skill”) make interesting points and both are right.  While automation can be useful, human judgment is indispensable. 

All providers of due diligence agree that it is not a commodity. But we also need to be conscious that not all companies have the same resources available for the task.

Automation can be appropriate, for example, in performing third-party risk assessments. By using a customizable risk-scoring algorithm tailored to its unique industry and risk profile, a company can invest its resources where the risks are higher and minimize their diversion to lower-risk situations.  

There is a place for partially automated desktop screening as well as for boots-on-the-ground reviews. More is not always better -- sometimes it’s just more.

Due diligence can also be streamlined and shared. All due diligence reports have a few baseline items in common: beneficial ownership, qualifications, ties to the government and reputational screening, which we shouldn’t insist on handling in a bespoke manner. 

Also, most commercial intermediaries work with several multinational companies. Third parties might consequently be willing to undergo (at their own cost) a single due diligence review that meets international requirements, which they could thereafter share with an unlimited number of global business partners. 

Multinational companies would then be free to reallocate resources to analysis of reports, mitigation of specific risks and other more complex and judgment-laden compliance challenges. For any given level of due diligence, companies need to make sound and defensible decisions about which service provider to use. The most critical thing to consider is the quality and experience of the people conducting the reviews.  

Due diligence services should be conducted by qualified, multilingual analysts under the supervision of FCPA lawyers.  The analysts need to have the skill and knowledge to notice, for example, when a registration document from a particular jurisdiction does not look right.  They need to be fully trained on internationally accepted due diligence best practices.  

An analysis by someone who understands the market -- the relevant languages and local requirements -- and a decision by someone at the company who understands the business imperative and the company’s appetite for risk are key. Without that expertise, due diligence is indeed a commodity, and not a very valuable one. But by combining expertise with appropriate automation, companies can design due diligence programs that, while they require investment, are not ruinous.


Pia Vining, pictured above, is the Senior Director of Due Diligence at TRACE International, Inc. She assists multinational companies with selecting and executing the appropriate due diligence solution. Her team of multilingual due diligence analysts and lawyers has completed reviews on thousands of commercial intermediaries in most countries and across all industries. She helps develop customized third party management programs for TRACE members and customers. She can be contacted here.

Article originally appeared on The FCPA Blog (https://www.fcpablog.com/).
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