How to effectively conduct legal due diligence on a partner before concluding a deal?

In business, success depends on reliable partners, so their legal due diligence before concluding a deal, or Due Diligence, is a mandatory measure to protect against risks and financial losses. At Antwort Law, we conduct a comprehensive check aimed at studying the financial condition, reputation and legal status of a potential partner. Such a detailed approach helps to avoid potential problems and guarantees successful cooperation.

Due Diligence can be large-scale or narrowly focused, depending on the type of transaction. For example, mergers and acquisitions (M&A) require a deep analysis of all aspects of the business: finances, corporate structure, intellectual property, legal disputes and labor relations. Whereas when concluding a contract for the supply of goods, the check may be less extensive, focusing on the reliability and reputation of the counterparty.

In any case, Antwort Law customizes Due Diligence for each specific case to ensure maximum protection of the client's interests. In this article, we highlight a number of the characteristics we use most in Due Diligence:

1. Financial statement review

The first step is a detailed analysis of the company's financial documents, namely, a review of:

• Balance sheets and income statements: these documents show the financial condition of the company, its stability and profitability.
• Cash flows: this allows you to understand how the company manages its finances and whether it has enough resources to fulfill its transaction obligations.
• Tax returns: it is very important to ensure that the partner complies with all tax obligations to the state in order to exclude the possibility of future fines and sanctions.

To carry out this stage, we use automated financial statement monitoring systems that can analyze large volumes of data, including balance sheets, income statements, debts and forecasts. We also use artificial intelligence to search for anomalies and potential threats.

Fun fact: more than 30% of deals are interrupted due to identified financial issues that the parties were not aware of before the review.

2. Litigation

Legal disputes and court cases are red flags that should not be ignored, as sometimes companies hide their legal history or present it in a more positive light. Our experts conduct independent investigations using specialized databases, including international sources that track legal disputes, sanctions, and offenses involving both individuals and companies to get a complete picture, including:

• Ongoing and completed litigation: how serious are the claims against the company and what are their results;
• Regulatory investigations: has the company had problems with regulators, such as tax or antitrust authorities. 

3. Compliance checks

Compliance is not just a formality, but a key aspect of long-term and safe operation in modern business. As part of Due Diligence, we check whether your potential partner complies with the following requirements:

• Anti-corruption legislation: we assess whether the company has a history of working with corruption schemes, which may lead to serious legal and reputational risks;
• Anti-money laundering (AML) regulations: it is important to ensure that the company complies with AML requirements to avoid possible involvement in illegal financial transactions.

4. Reputation check

An important element of Due Diligence is the assessment of the company's reputation in the market, namely:

• Client and partner reviews: allow you to obtain information about how the company interacts with its counterparties and clients;
• Media mentions: can hint at hidden problems or show the positive sides of the partner;
• History of cooperation with other companies: if a partner works with well-known and reliable brands, this is a good sign, and if its partners regularly terminate contracts, this is a cause for concern.

Due diligence across jurisdictions: Laws governing corporate reporting, ownership and legal disputes can vary greatly. For example, in the US, due diligence focuses on reviewing corporate records, reporting to regulators (SEC for public companies), reviewing lawsuits and protecting intellectual property. Compliance and antitrust issues are particularly important here, while in the UAE, special attention is paid to compliance with Islamic law (Sharia), tax laws and free trade zone regulations.

Sanctions due diligence: Clients working with international partners may face additional risks, especially in light of dynamically changing sanctions policies and companies may be subject to sanctions due to interactions with states under international restrictions or due to failure to comply with anti-money laundering requirements.

We conduct a deep analysis of all associated risks, including checking counterparties through international sanctions lists (for example, OFAC or UN lists) and assessing the partner's compliance with the requirements of international trade agreements and regulations.

5. Why trust Due Diligence to Antwort Law?

Due Diligence is not only a search for shortcomings, but also a chance to find opportunities to improve the terms of the transaction. At Antwort Law, we conduct partner due diligence, as well as post-transaction monitoring, which allows us to monitor changes in the company's activities and promptly identify new risks using our many years of experience and deep knowledge in the field of corporate and international law. Our team:

• Guarantees confidentiality and objectivity: all information obtained during the audit is processed with the utmost care.
• Works for results: we not only identify risks, but also offer ways to minimize them in order to make your transaction as safe and profitable as possible.

By contacting Antwort Law, you get a reliable legal partner who will protect your interests at every stage of the transaction. We will be happy to help your business become stronger and safer.

Antwort Law — protection of your business at the highest level.

Lidia Ivanova

International lawyer
Antwort Law