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1、 Due Diligence and Risk Mitigation in Donor Prospect ResearchOverview GuideWealth-X|Due Diligence and Risk Mitigation in Donor Prospect Research|Overview Guide2Wealth-X Due DiligenceA guide for nonprofit and higher education organizations featuring insights from leading wealth intelligence and dilig
2、ence experts at Wealth-XEstablishing a due diligence process to vet potential donors is critical to avoiding reputational damage and staving off financial risks to your organization.Accepting donations from unscrupulous donors can lead to wider donor fallout and associated PR/legal fees.Nonprofit or
3、ganizations and educational institutions are facing heightened consequences to accepting funding that is,at best,counterintuitive to their mission.The stringent due diligence practices seen across the financial services industry to comply with regulatory standards are increasingly being adopted by n
4、onprofit fundraising teams to protect their organization from financial and reputational threats.Seasoned prospect researchers will recognize overt“red flags”that are barriers to accepting gifts from potential donors,such as highly publicized links to terrorism and corruption scandals.But as“red fla
5、g”categories broaden,it is becoming more subtle and difficult to spot a potential pitfall.As a result,the workflows associated with incorporating effective due diligence practices into the donor prospecting lifecycle are evolving with new complexities.This guide highlights several best practices to
6、help nonprofit and higher education organizations respond to these new risks by incorporating due diligence in their prospect development strategy.Starting with a review of the current landscape,the guide continues with strategies for implementing new processes within current due diligence workflows
7、,and tips for how and when to partner with a third-party resource to these ends.Contributors to this GuideIn July 2021,David Garcia,Director of Business Development at Wealth-X joined Tom Hill,Head of Enhanced Due Diligence at Wealth-X,for a discussion about modern due diligence at the APRA Prospect
8、 Development 2021 Conference.The insights shared during that discussion have been synthesized to produce this guide.With over 20 years of combined experience working with a diverse roster of nonprofit clients in due diligence and risk mitigation,both Garcia and Hill are experts in guiding fundraisin
9、g teams at nonprofit and higher education organizations toward achieving their goals.Wealth-X|Due Diligence and Risk Mitigation in Donor Prospect Research|Overview Guide1Introduction Due Diligence Trends and DevelopmentsSuccessful due diligence requires modern,effective and streamlined strategies to
10、 both reduce reputational risk and meet organizations evolving prospecting goals.Nonprofit and higher education organizations are often more sensitive to considerations such as environmental,social&governance(ESG)or diversity,equity,&inclusion(DEI)risk factors,for example.Protecting themselves from
11、exposure in these areas can be quite difficultbeyond the reach of traditional due diligence practices alone.We are hearing from clients that there is“more onerous research in scope without any extra time available in which to complete it”says Hill.But although due diligence is evolving,its purpose s
12、hould never be“finding a reason to avoid engaging with someone”;rather,the process should be“an exercise undertaken to provide a satisfactory level of comfort to all stakeholders,”Hill describes.The following are some of the major trends that are driving the impetus for change in due diligence best
13、practices today.Social media is an evolving risk vectorSocial media channels introduce new types of reputational risk.Specifically,highly publicized instances of social media misbehavior among well-known individuals who have or are planning to donate to nonprofit or higher education organizations.As
14、 a result,mitigating risk associated with adverse content from social media channels is“one of the most prominent emerging issues that were seeing,”says Hill.Donor deception is on the riseThere are unpredictable motivations for donors to hide their identifies from recipients,putting those organizati
15、ons at risk.“Weve seen a couple of cases where the potential donor has used a fake profile when contacting the organization about making a donation,”says Hill.“This is not only alarming.it also represents a money laundering risk if the individual is able to make a donation under a false identity and
16、 requests that the donation be returned.”The due diligence capabilities gap is growingIts no longer possible to conduct exhaustive research within traditional due diligence research methodologies and time-frames alone.Now,the need for new best practices is growing“perhaps even beyond the regulatory
17、compliance-driven needs of companies operating in other spaces such as financial services,”says Hill.Just as researchers seek to understand if potential donors are politically exposed,are on sanctions lists,or have been compromised by adverse media coverage,so too must they define what is acceptable
18、 in terms of ESG,DEI,and other modern,critical perspectives.Wealth-X|Due Diligence and Risk Mitigation in Donor Prospect Research|Overview Guide2Five questions and answers about modern due diligence best practicesModern donor prospect researchers should create a formal gift acceptance policy that ta
19、kes these new risks into account.But too often,fulfilling that policy requires capabilities beyond what those teams are able to execute by themselves.During their conversation,Garcia and Hill identified new due diligence best practices for donor prospect researchers.These include determining how and
20、 when to seek out the support of third-party experts in their efforts.1 What does a successful due diligence workflow involve today?The goal of the prospect research team is to provide sufficient and accurate information about potential donors so that a decision can be made about acceptance,without
21、personally impacting that decision themselves.Typically,this happens as the organization is in the process of receiving a major donation,but often they are doing some remedial work around previously accepted gifts that werent subjected to the level of scrutiny that is necessary today.Generally,the r
22、esearchers must assess the size of the donation,how well they know the individual,whether the individual is from a high-risk country or sector,and whether the individual demonstrates any immediate“red flags”such as a criminal history or negative,concerning media coverage.Upon taking those factors in
23、to consideration,the researchers may decide to commission an external due diligence report to mitigate additional risk.This approach is growing in strategic importance as it allows those researchers to capture critical insights that are often overlooked or out of their reach.It also allows for great
24、er objectivity in the research approach.At Wealth-X,for example,our research analysts will deliver a report that goes through our policy control process before it is delivered within a secure platform or in a PDF format only the original nonprofit or higher education organizations representatives ca
25、n access.This allows for a broader,more holistic approach.What are the appropriate criteria for launching a due diligence workflow?In the past,researchers only requested reports in situations where there was an obvious trigger for more extensive research if a seven-figure gift came from an unfamilia
26、r,overseas party,for example.In one historic case,Wealth-X researchers found it appropriate to investigate the donors family,company,and historical data reaching back as far as the 1920s.Historically,a nonprofit or higher education organization might receive a small number of large gifts of seven fi
27、gures or more that would require investigation,usually from outside the United States.Today,these organizations often accept gifts in six-figure ranges from 1 million or more donors inside and outside the U.S.As our culture evolves and major scandals continue to come to light,these organizations rec
28、ognize the impetus for transforming their due diligence approach to incorporate more criteria and apply those processes to a wider variety of potential and existing donors.2Wealth-X|Due Diligence and Risk Mitigation in Donor Prospect Research|Overview Guide33 When should the due diligence process ta
29、ke place?In practice,organizations should do an initial check on a potential donor early during their conversations.That way,they can quickly determine if its worth investing their time in continuing conversations with this individual.Later,they may find it appropriate to ask for additional assistan
30、ce in order to conduct a deeper dive.In terms of that“deeper dive,”were already witnessing a lot of activity.In addition to a great many proactive requests,were also witnessing remediation projects as organizations work their way through historical donations,often using third-party resources retrosp
31、ectively as a result.Which organizations should consider partnering with a third party?Many organizations have already transformed their due diligence processes to become more sophisticated,with some establishing guidelines and policies that reflect modern risks and cultural changes.Specifically,wev
32、e witnessed a lowering of the thresholds that trigger a deeper dive into the full range of an individuals activities and associations.If an organization becomes aware of any“red flags”such as a foreign risk,industry risk,or a personal trait or behavior that might be of concernthat would immediately
33、warrant more detailed research.Organizations that lack the internal resources for those detailed searches,but nonetheless recognize the necessity of lowered thresholds of this kind,can benefit from the aid of third-party experts especially.Even so,we strongly believe that third-party providers shoul
34、d never replace internal teams and their efforts.Internal teams are most in tune with their organizations values and willingness to accept risk.Thats why we help arm them with the tools and knowledge they need to perform their own initial checks and avoid investing too much time,effort,and money in
35、unworthy prospects.What should internal research teams look for in a third party,when the time comes?As indicated,internal researchers should look for third parties that can become extensions of their own in-house teams,not replacements.For example,a third party might provide certain language skills
36、 when working with foreign prospects,or certain industry expertise that is lacking in house.But internal teams can use third parties for more than foreign prospects alone.For example,when the size of a donation from a domestic individual warrants a deeper dive,third parties may provide resources tha
37、t allow for some external validation that isnt achievable by the internal team themselves.45Wealth-X|Due Diligence and Risk Mitigation in Donor Prospect Research|Overview Guide4Lowest RiskHighest RiskLOW1.Donation size Domestic:$10K-$100K International:$5K-$50K2.Profile Low country risk Low industry
38、/sector risk3.Low public visibility,donor is very well known to and/or affiliated with the organizationMEDIUM1.Donation size Domestic:$100K-$100M International:$50K-$50M 2.Profile Medium country risk Medium industry/sector risk3.Moderate public visibility,organization has some prior knowledge and/or
39、 affiliation with the donorHIGH1.Donation size Domestic:$100K-$250M International:$50K-$100M 2.Profile High country risk High industry/sector risk3.High public visibility,donor is relatively unknown to and/or is not affiliated with the organizationLowest RiskHighest Risk Targeted Politically Exposed
40、 Persons(PEP)Sanctions Watch lists Adverse media checks Preliminary due diligence Initial wealth assessment Detailed open-source research(OSINT)Full net worth estimation Detailed source of wealth(SoW)analysis Full risk assessment,all Enhanced Due Diligence(EDD)research elements Opinion-based human i
41、ntelligence(HUMINT)Local/industry source commentary Well placed individuals,valuable insightsWealth-X Key Risk Indicators to ConsiderThe degree of effort and diligence required in nonprofit and higher education donor research and reporting is congruent with the degree of perceived risk demonstrated
42、in each of the three sections of this diagram.Overall,nonprofit and higher education organizations should evolve their due diligence practices to be more sensitive and stringent.Although donations are not regulated in the same way as the financial services industry,moral,cultural,and financial facto
43、rs compel these organizations to do so.Its with the support of trusted partners like Wealth-X that their leaders can feel comfortable with their donation practices.They will have conducted checks they consider to be proportionate to the risks that are top of mind for them today.How Wealth-X Can Help
44、Wealth-X Diligence provides a unique combination of in-depth intelligence on individuals spanning all levels of wealth,helping organizations align with these best practices and mitigate both reputational and commercial risk.Access succinct and sophisticated reportingWealth-X Dossiers help researcher
45、s accomplish their goals quickly without“information overload”during the diligence process,providing only concise and relevant intelligence for their consideration.In addition to standard dossiers,Wealth-X provides researchers with confidential diligence reports delivered securely to internal resear
46、ch teams.Each report features an executive summary,a risk profile chart,and even a bibliography of sources based on client feedback and demand.Close the gaps within your existing approachWealth-X uses approaches common to highly regulated industries to provide enhanced due diligence deliverables.In
47、addition to basic profile information,researchers receive intelligence on donors personal and professional networks,club and board memberships,and even personal passions.Researchers also receive a comprehensive analysis of a donors net worth and sources of wealth to determine whether it all has been
48、 accumulated legitimately.Prevent reputational damage and costsIn addition to non-compliance and regulatory penalties,Wealth-X recognizes the importance of preventing reputational damage and its associated costs.“Thats why we also spend a significant amount of time and effort to uncover the extra co
49、ntent included in our reports,alerting you to legal issues,negative news,criminal and political exposure,and relationships and activities that may give you cause for concern,”as Hill describes.Ensure constant complianceThe Wealth-X diligence process was originally designed for highly regulated indus
50、tries.As a result,the process incorporates elements of anti-money laundering(AML)and anti-bribery and corruption(ABC)checks to ensure you meet your regulatory responsibilities.These measures allow you to understand any risks that may present themselves when dealing with a current or potential client
51、 or donor;you can investigate past donors retrospectively if needed as well.Take advantage of new due diligence innovationsWealth-Xs latest innovation involves supplemental intelligence that focuses on up to three associated entities for each individual.For example,this intelligence can feature info
52、rmation about the corporations to which the individual is connected.The intelligence can be accessed as a standalone report as well.“Our hand curated approach is key as it allows for some customization based on the requesters area of interest and instructions,”says Hill.“We also have the size and sc
53、ale to subscribe to just about any data source that has value,including niche resources in different countries.”Contact us today to learn more and receive a customized demo of the solutions that will empower your organization to create a higher 2022 Altrata,a part of the Euromoney Institutional Inve
54、stor PLC Group.All rights reserved.5Wealth-X|Due Diligence and Risk Mitigation in Donor Prospect Research|Overview GuideConnect with a due diligence expert todayStart mitigating reputational and regulatory risk with Wealth-Xs Enhanced Custom Due Diligence built on unparalleled wealth intelligence about high net worth(HNW)and ultra-high net worth(UHNW)individuals.Contact a due diligence expert for a free consultation today.