What is Due Diligence


Due Diligence refers to the process of developing, reviewing and verifying relevant information about a business transaction.


   It is the duty of care or

   measure of prudence...


      (1) exercised by a reasonable person,

      (2) consistent with prevailing

           or accepted standards,

      (3) under the particular circumstances

           in a business transaction.

 Focus of 



      -Asset Identification

       and Verification

      -Business Ethics

      -Criminal History

      -Financial History (Borrowing,

         Recurring Obligations, UCC filings)

      -Potentially Embarrassing


      -Previous or Pending


      -Undisclosed Business

       Interests (Conflict of Interest)

      -Unreported Liabilities




Typical JHL Group Due Diligence


-Database searches 

     Business & Trade


     •Corporate Records

     •Financial & Regulatory

     •Litigation and Court Records

     •Newspapers & Magazines

     •Property and Driving Records

     •Tangible Assets


-Public record searches 

     •Business Indices

      (Incorporations, UCC filings, 

        licenses, etc)

     •Civil, Criminal and

      Bankruptcy Records

     •Financial (Commercial

        credit history)

     •Property, Tax and Motor

      Vehicle Records

     •Regulatory Agency Filings






Advanced Due Diligence Inquiries


-Bankers, Brokers, Analysts

 or Industry Experts


-Current & Former Employees

-Customers or Clients

-Interviews, Asset Verification,

 Site Visits

-Prior Business Associates

-Property/Asset Verification


-Website Survey




Who Should

 Perform Due Diligence



     Asset-based Lending


      •Commercial Loan Department

      •Special Assets Department



      •Audit Committee



      •Directors/Officers (D & O

        insurance issues)

      •Legal Department


      •Business Policy Committee



 and Venture Capital Firms


-Law Firms




When to Conduct Due Diligence


-Indication of Loan Problems

-Loan Requests/ Renewals/

  Increases/ Defaults

-Merger/Acquisition/Joint Venture

-Modified Contract Terms

-New Business Relationship

-New Vendor Relationship

-*USA Patriot Act Compliance

-Recovery of Assets (Hidden

  Asset Investigation)



*New Lender Requirements

 Required by the Patriot Act



Regulation: The USA Patriot Act (H.R. 3162 signed by President Bush October 26, 2001) expands the authority of the Secretary of the Treasury to regulate the activities of U.S. financial institutions.  He is to promulgate regulations:


-under which securities brokers and dealers as well as commodity merchants, advisors and pool operators must file Suspicious Activity Reports (SARs);


-requiring businesses, which were only to report cash transactions involving more than $10,000 to the IRS, to file SARs as well;


-imposing additional “special measures” and “due diligence” requirements to combat foreign money laundering;


-prohibiting U.S. financial institutions from maintaining correspondent accounts for foreign shell banks;


-preventing financial institutions from allowing their customers to conceal their financial activities by taking advantage of the institutions’ concentration account practices;


-establishing minimum new customer identification standards and recordkeeping and recommending an effective means to verify the identity of foreign customers;


-encouraging financial institutions and law enforcement agencies to share information concerning suspected money laundering and terrorist activities; and


-requiring financial institutions to maintain anti-money laundering programs which must include at least a compliance officer; an employee training program; the development of internal policies, procedures and controls; and an independent audit feature.


(Emphasis added by JHL Group, Inc)


Patriot Act Sources Covered



·        United Nations Named Terrorists

·        Office of Foreign Asset Control

·        Bank of England Sanctions

·        World Bank Ineligible Firms

·        OSFI - Canada

·        Defense Trade Controls (DTC) Debarred Parties

·        US Bureau of Industry and Security - Unverified Entity List

·        US Bureau of Industry and Security - Denied Entity List

·        US Bureau of Industry and Security - Denied Person List