Business intelligence
Collect, analyze, and visualize data to guide strategic decisions and uncover growth opportunities.
Learn moreDue diligence
Protect your organization from external risk with due diligence
Home > Risk Management Glossary > Due Diligence
What is due diligence?
Due diligence is the process of investigating and evaluating a person, company, or transaction before entering into a business relationship or agreement.
In the U.S., due diligence is most commonly associated with mergers and acquisitions (M&A), regulatory compliance, financial services, and vendor or third-party risk management. The goal is to identify risks, confirm information accuracy, and ensure compliance with applicable laws and regulations.
Why is due diligence important?
Conducting due diligence protects organizations from financial, reputational, regulatory, and operational risks. It ensures that businesses make informed decisions based on verified data rather than assumptions.
In the U.S., due diligence plays a key role in:
- Mergers & Acquisitions: Validating financial records, ownership structures, and liabilities before purchase or investment.
- Regulatory Compliance: Meeting requirements under anti-money laundering (AML) laws, the Foreign Corrupt Practices Act (FCPA), and industry-specific regulations.
- Third-Party Risk Management: Vetting donors, suppliers, vendors, and contractors to ensure ethical practices and compliance.
- Financial Services: Assessing creditworthiness and identifying potential fraud or corruption risks.
Historically, due diligence in the U.S. has evolved alongside financial regulation—gaining prominence after major corporate scandals and regulatory reforms such as the Sarbanes-Oxley Act. Today, digital tools and global data access have made the process faster and more comprehensive.
How does due diligence work?
Due diligence typically involves several stages:
- Information Gathering: Collect public records, financial documents, regulatory filings, litigation history, and media coverage.
- Verification: Validate identities, business ownership, and claims made by individuals or organizations.
- Risk Assessment: Evaluate potential red flags such as sanctions, politically exposed persons (PEPs), litigation, adverse media, or regulatory breaches.
- Reporting: Summarize findings in reports or dashboards for decision-makers.
- Ongoing Monitoring: Continue monitoring relationships to detect risks that may arise after onboarding.
Types of due diligence
Different contexts call for specialized due diligence processes:
- Financial Due Diligence: Review of financial statements, liabilities, and projections.
- Legal Due Diligence: Examination of contracts, litigation, intellectual property, and compliance.
- Operational Due Diligence: Assessment of internal controls, supply chains, and processes.
- Reputational Due Diligence: Review of media, public perception, and ESG (environmental, social, governance) practices.
- Regulatory/Compliance Due Diligence: Ensuring adherence to U.S. laws like AML and FCPA.
Examples of due diligence in practice
- Fundraising and nonprofits
A prep school conducts donor due diligence tosource trustworthy fundraising for a $4 million campaign. - Professional Services
A consulting firm performsreputational due diligence on a potential partner, identifying negative media coverage tied to labor violations. - Financial services
An investment banking firm evaluates Environmental, Social, and Governance (ESG) risk to ensure a potential partner doesn’t put the company at risk of tangible financial loss resulting from unethical business practices.
Due diligence vs. enhanced due diligence
While standard due diligence involves gathering and verifying information to assess risks, enhanced due diligence (EDD) is a deeper, more comprehensive review conducted in higher-risk scenarios. EDD is often required by regulators and compliance frameworks when dealing with politically exposed persons (PEPs), high-value transactions, or operations in jurisdictions with elevated corruption or financial crime risks.
Key differences include:
- Scope: EDD goes beyond basic identity checks and financial reviews, incorporating extensive background research, media analysis, and source-of-funds investigations.
- Regulatory Expectation: In the U.S., financial institutions are expected to apply EDD to meet AML and FCPA requirements when standard due diligence may not sufficiently mitigate risk.
- Outcome: EDD provides a higher level of assurance, helping organizations avoid reputational damage, regulatory penalties, and financial losses.
By understanding when to escalate from due diligence to enhanced due diligence, organizations can better align with compliance obligations and safeguard against hidden risks.
Due diligence summary
|
Term |
Due diligence |
|
Definition |
The process of investigating a person, company, or deal before a business relationship |
|
Used By |
Financial institutions, legal teams, corporations, nonprofits |
|
Key Benefit |
Identifies risks, ensures compliance, supports informed decisions |
|
Example Tool |
Nexis Diligence+, Nexis for Development Professionals, Nexis+ AI |
How LexisNexis can help with due diligence
LexisNexis provides trusted, comprehensive tools that streamline due diligence investigations:
- Nexis Diligence+™: A platform that consolidates global news, company data, sanctions, watchlists, and legal information into a single workflow.
- Nexis® for Development Professionals: Structured, licensed datasets that can be integrated into an organization’s own due diligence platforms or AI agents
- Nexis+ AI™: Enables conversational due diligence research, summarization, and reporting powered by trusted LexisNexis content.
By combining authoritative data with advanced technology, LexisNexis helps U.S. organizations reduce compliance risk, meet regulatory requirements, and make confident business decisions.
Related terms
Frequently asked questions
Yes—in certain contexts, such as anti-money laundering (AML) compliance, securities offerings, and under the Foreign Corrupt Practices Act (FCPA).
Background checks focus on individuals, while due diligence is a broader, more comprehensive process that evaluates companies, transactions, and third parties.
Modern due diligence increasingly relies on AI, automation, and access to global data sources to accelerate investigations and improve accuracy.
Proactive due diligence happens before entering agreements. Reactive due diligence is conducted in response to red flags, regulatory inquiries, or emerging risks.
Ready to conduct smarter due diligence?
Learn how LexisNexis can help you assess risk, maintain partner relationships, and protect your reputation. Get more data uncovered faster with AI.
Conduct smarter due diligence
Connect with a LexisNexis expert to discuss how to best support your organization’s risk management process.
LexisNexis, a division of RELX Inc., may contact you in your professional capacity with information about our other products, services, and events that we believe may be of interest. You can manage your communication preferences via our Preference Center. You can learn more about how we handle your personal data and your rights by reviewing our Privacy Policy.