• Due diligence can swing the scales of justice.Legal Law Justice image by Stacey Alexander from Fotolia.com
  
  Due diligence means giving a respectable effort to find problems in a business or criminal situation before they occur. The term comes up when one party accuses the other for failing to find and disclose factors which make the transaction less attractive and might have caused one of the parties to pull out. The accused party can say that it did as much as any rational person could expect in the situation.
  
  

The History of Due Diligence

• The term "due diligence" was created as a defence for stock brokers because of suits resulting from the United States' Securities Act of 1933. Brokers were accused of failing to fully disclose the facts surrounding certain stocks after those stocks became worthless. The stock brokers tried to demonstrate in court that they had done as much work as a rational person would require when they investigated the stock. They have performed their "due diligence" and couldn't be held accountable if there were things they couldn't find out while doing an acceptable job of investigation. The term is used in other areas such as the purchase of a company to protect the attorneys handling the transaction.
  
  

The Process of Due Diligence

• Due Diligence consists of finding areas of possible conflict or danger that imperil a business transaction and exploring those areas, usually by asking questions of the parties in the transaction. The people conducting the due diligence study the answers and create follow-up questions to fully explore every possible circumstance that could derail the transaction. They try to assign a numerical evaluation to each situation so that both parties can know how much chance there is of untoward events creating problems. For example, there is opposition among stock holders to a merger of two companies. The team responsible for due diligence might find that the stock holders have exercised voting rights only 20% of the time in the past ten years. They would tell the parties involved in the transaction that there was a 20% chance of interference from the opposition.
  
  

Due Diligence in Criminal Law

• In criminal law, due diligence comes up when a defendant is accused of negligence or liability. The defendant has to prove that he did everything possible to avert the incident. Notice that criminal law differs from civil law in this instance. The defendant can't simply prove that he did what any rational person would have done. He must prove that he covered all contingencies, that he did everything that could have been done to prevent the incident. The term also comes up when a prosecuting attorney has evidence that shows the innocence of a defendant. He is required to turn the evidence over to the defense. If he fails to do so, he must prove that he made every effort to turn the evidence over.