Amongst growing labour and financial concerns, commercial enterprises are also faced with the added exertion of ensuring that they perform the necessary due diligence in respect of their transactions and the establishment of business relations.

Due diligence in general terms, refers to the act of conducting comprehensive legal analysis in respect of a party’s compliance to the legislative standards and obligations within its relevant area of trade or business and, should be conducted prior to entering into an agreement or transaction. It further serves as a mechanism to ensure that information is recorded the way it is presented.

Why Perform Due Diligence?

In respect of commercial enterprises, due diligence usually forms part of risk management functions within entities. It is a pre-emptory act performed to guard against committing an offence by ignorance and potential financial risk.

The compilation of proper records, checks and balances in respect of each business relation or transaction also allows for a smoother running business. It further allows for the proper understanding of the markets that an entity chooses to do business in and allows a company to assess it’s operational requirements in respect of potential risks. 

Furthermore, in an effort to curb the propensity of financial crime such as money laundering and fraud, the Financial Intelligence Centre Act 38 of 2001 as amended (hereafter “FICA”), framed in a way that obligates accountable institutions, as defined in FICA to perform the necessary due diligence. Although not specifically providing for the performance of due diligence in the broad sense, the penalties imposed on accountable institutions for not performing the correct checks, has allowed greater focus on due diligence mechanisms as a whole.   

How to perform the necessary due diligence

There are many ways to source the necessary information required to fulfil the obligations mentioned above. Many companies develop internal mechanisms and departments which deal with this function. Often the answers required to ensure compliance is company or trade specific and depend on the nature of each transaction.

Due diligence can performed in respect of a number of different factors within an entity. It can take the forms of administrative, financial, asset, legal and human resources due diligence, to name but a few.

As previously mentioned, the manner in which the due diligence is then performed, is dependant on the type of transaction and the nature of the specific entity. There therefore, appears to be no set structure or guideline for performing due diligence. Internal company mechanisms will therefore, have to be developed and implemented in way so that the purpose of performing the due diligence is fulfilled. Non-compliance with the FICA obligations can lead to administrative sanctions, financial penalties and in certain instances, criminal convictions. It is therefore important for any company to have an efficient internal structure to deal with relevant obligations in terms of FICA and also ensure that the facilities are in place to cope with the accessing and processing of the relevant source information.

Provision for this kind of structure may simultaneously be achieved by the implementing of the proper due diligence mechanisms.


Performance of the necessary due diligence goes a long way in ensuring the efficient running and avoidance of unnecessary disputes and red-tape in respect of businesses and although it does not function as a catch all, it does allow for the mitigation of significant potential risk.

Contact an expert at SchoemanLaw for any of your compliance or due diligence needs.

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