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45-597: The regulation is an outcome of the EU's FLEGT (Forest Law Enforcement, Governance and Trade) Action Plan , which aims to reduce illegal logging worldwide. The Action Plan recognised the possibility of developing new legislation to address the demand side of illegal logging . This resulted in the adoption of the EUTR in December 2010. The EUTR entered into force on 3 March 2013. It is directly applicable in all EU member states . In February 2016,

90-452: A legal obligation , but the term more commonly applies to voluntary investigations. It may also offer a defence against legal action. A common example of due diligence is the process through which a potential acquirer evaluates a target company or its assets in advance of a merger or acquisition . The theory behind due diligence holds that performing this type of investigation contributes significantly to informed decision making by enhancing

135-431: A VPA, the partner country agrees to export only legal timber products to the EU, while the EU agrees to give verified legal ('FLEGT-licensed) timber products automatic access to the EU market. VPAs are also intended to strengthen forest governance in timber-exporting countries by improving transparency, accountability and stakeholder participation. The core of each VPA is the description of a timber legality assurance system

180-502: A business relationship, even if they do not contribute to those impacts". The term 'due diligence' was originally put forward in this context by UN Special Representative for Human Rights and Business John Ruggie , who used it as an umbrella to cover the steps and processes by which a company understands, monitors and mitigates its human rights impacts. Human Rights Impact Assessment is a component of this. The UN formalized guidelines for Human Rights Due Diligence on June 16, 2011, with

225-581: A charge of breach of regulations: for example, under the Timber and Timber Products (Placing on the Market) Regulations 2013 and the Environmental Protection (Microbeads) (England) Regulations 2017, businesses may be able to defend a charge of non-compliance with regulations if they can show that they have undertaken supplier due diligence to a necessary standard. References to "due diligence" and

270-479: A due diligence of a company's agents, vendors, and suppliers, as well as merger and acquisition partners in foreign countries could lead to doing business with an organization linked to a foreign official or state owned enterprises and their executives. This link could be perceived as leading to the bribing of the foreign officials and as a result lead to noncompliance with the FCPA. Due diligence in regard to FCPA compliance

315-551: A due diligence process. This is in order to reduce the number of failed mergers and acquisitions. In this regard, two new audit areas have been incorporated into the Due Diligence framework: The relevant areas of concern may include the financial, legal, labor, tax, IT, environment and market/commercial situation of the company. Other areas include intellectual property, real and personal property, insurance and liability coverage, debt instrument review, employee benefits (including

360-621: A number of aspects of the transaction including the purchase price, the representations and warranties negotiated in the transaction agreement, and the indemnification provided by the sellers. Due Diligence has emerged as a separate profession for accounting and auditing experts and is typically referred to as Transaction Services. With the number and size of penalties increasing, the United States' Foreign Corrupt Practices Act (FCPA) has caused many U.S. institutions to look into how they evaluate all of their relationships overseas. The lack of

405-399: A party has a factual basis for a cause of action. In civil actions seeking a foreclosure or seizure of property, a party requesting this relief is frequently required to engage in due diligence to determine who may claim an interest in the property by reviewing public records concerning the property and sometimes by a physical inspection of the property that would reveal a possible interest in

450-444: A party. Similarly, in areas of the law such as bankruptcy , an attorney representing someone filing a bankruptcy petition must engage in due diligence to determine that the representations made in the bankruptcy petition are factually accurate. Due diligence is also generally prerequisite to a request for relief in states where civil litigants are permitted to conduct pre-litigation discovery of facts necessary to determine whether or not

495-440: A public consultation as part of the review process. The Commission published the review on 18 February 2016. It concluded that "the EU is on track to achieve its objectives to combat illegal logging and associated trade in illegal timber, but challenges remain". According to the commission: "Some positive trends are visible, namely that EU operators are gradually taking steps to ensure the legality of their suppliers and that there

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540-459: A specialized legal term and later a common business term due to the United States' Securities Act of 1933 , where the process is called "reasonable investigation". Under Section 11b3, a person could avoid liability for an untrue statement of a material fact if they had, "after reasonable investigation, reasonable ground to believe and did believe, at the time", the truth of the statement. The defense at Section 11, referred to later in legal usage as

585-508: Is a European Union initiative to address illegal logging and the social, economic and environmental harm it causes. The EU adopted the Action Plan in 2003. The plan includes activities in the EU and in tropical countries that export timber and timber products to the EU. These measures include a regulation that prohibits EU businesses from importing or trading illegal timber, and bilateral trade agreements with timber-exporting countries. Much of

630-663: Is more awareness of the problem of illegal logging amongst EU consumers. The Regulation has also encouraged producer countries to develop systems assessing compliance with the requirements of the legislation. However, more effort is needed from both the Member States and the private sector to ensure its effective and efficient application". For the EU to achieve their goal, it passed additional deforestation regulation into law, effective as of December 2024. EU FLEGT Action Plan The European Union Forest Law Enforcement, Governance and Trade Action Plan (or EU FLEGT Action Plan )

675-500: Is proven, the defendant must prove on balance that they did everything possible to prevent the act from happening. It is not enough that they took the normal standard of care in their industry – they must show that they took every reasonable precaution. Due diligence is also used in criminal law to describe the scope of the duty of a prosecutor, to take efforts to turn over potentially exculpatory evidence , to (accused) criminal defendants. In criminal law, "due diligence" also identifies

720-516: Is required in two aspects: In the M&;A context, buyers can use the due diligence phase to integrate a target into their internal FCPA controls, focusing initial efforts on necessary revisions to the target's business activities with a high-risk of corruption. While financial institutions are among the most aggressive in defining FCPA best practices, manufacturing, retailing and energy industries are highly active in managing FCPA compliance programs. In

765-492: The Affordable Care Act ) and labor matters, immigration, and international transactions. Areas of focus in due diligence continue to develop with cybersecurity emerging as an area of concern for business acquirers. Risk is a key factor in determining 'duty of care'. Regulations require 'reasonable security' in cybersecurity programs, and litigators examine whether 'due care' was practiced. Due diligence findings impact

810-698: The OECD member countries agreed to revise their guidelines promoting tougher standards of corporate behavior, including human rights. As part of this new definition, they utilized a new aspect of due diligence that requires a corporation to investigate third party partners for potential abuse of human rights. The OECD Guidelines for Multinational Enterprises (a government-backed international agreement that provides guidance on responsible business conduct) state that multinational enterprises will "Seek ways to prevent or mitigate adverse human rights impacts that are directly linked to their business operations, products or services by

855-616: The "due diligence" defense, could be used by broker-dealers when accused of inadequate disclosure to investors of material information with respect to the purchase of securities . In legal and business use, the term was soon used for the process itself instead of how it was to be performed, so that the original expressions such as "exercise due diligence in investigating" and "investigation carried out with due diligence" were soon shortened to "due diligence investigation" and finally "due diligence". As long as broker-dealers exercised "due diligence" (required carefulness) in their investigation into

900-580: The EU ( Côte d'Ivoire , Democratic Republic of the Congo , Gabon , Guyana , Honduras , Laos , Malaysia , Thailand , Vietnam ). Together these 15 countries supply 80 percent of the EU's tropical timber. On 21 April 2016, the presidents of Indonesia, the European Commission and the European Council confirmed that Indonesia had met the final major requirement of its VPA and was on course to become

945-511: The EU Timber Regulation. The regulation requires timber importers and traders in the EU to trade only in legal timber and adopt due diligence procedures to ensure their supply chains are legal. It requires EU member states to have legislation, procedures and penalties in place to enforce the regulation. By July 2015, 24 of the 28 EU member states had implemented the EU Timber Regulation. The EC has issued pre-infringement notices against

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990-475: The EU adopted the FLEGT Action Plan, other markets have taken steps to prevent trade in illegal timber products. These include: Due diligence Due diligence is the investigation or exercise of care that a reasonable business or person is normally expected to take before entering into an agreement or contract with another party or an act with a certain standard of care . Due diligence can be

1035-429: The EU and that some EU member states have not yet fully implemented the EU Timber Regulation. Supporters of the FLEGT Action Plan say the time taken to deliver FLEGT licences indicates the rigour and credibility of the process. For instance, Saskia Ozinga of the campaigning organisation FERN described the FLEGT Action Plan as "the EU's best-ever policy on tropical forests, since it's the first scheme of its kind to address

1080-426: The EU market to keep records of their suppliers and customers. The due diligence system shall contain the following three elements: Operators can set up due diligence systems on an individual basis or with the assistance of monitoring organisations (Article 8). Monitoring organisations are legal entities recognised by the European Commission, as fulfilling the EUTR requirements, competent to assist operators in meeting

1125-504: The EUTR due diligence obligations. The Regulation is legally binding on all 28 EU Member States . The EUTR requires all EU member states to implement the Regulation by designating a ‘competent authority’ responsible for its application (Article 7), lay down “effective, proportionate and dissuasive” penalties applicable to infringements of the EUTR and take all measures necessary to guarantee that penalties are enforced (Article 19). In 2015,

1170-640: The European Commission published an updated version of the Guidance Document for the EU Timber Regulation. The EUTR covers a range of timber products such as solid wood products, flooring, plywood, pulp and paper that are listed the EUTR's Annex. The EUTR does not cover recycled products, as well as printed papers such as books, magazines and newspapers. The product scope can however be amended. The EUTR applies to both imported and domestically produced timber and timber products. Timber and timber products covered by valid FLEGT or CITES licences automatically meet

1215-469: The European Commission undertook a review of the EUTR, in compliance with a legal obligation laid down in Article 20(3) of the Regulation. The purpose of the review is to assess the functioning and effectiveness of the EUTR, including in preventing illegally harvested timber or timber products derived from such timber being placed on the market. More than 240 stakeholders, NGOs and the private sector contributed to

1260-477: The FLEGT Action Plan focuses on promoting trade in legal timber products and creating disincentives for trade in illegal products. However, the Action Plan's measures go further by addressing aspects of poor governance that enable illegal logging to persist. The EU FLEGT Action Plan envisages action in seven areas: As envisaged in the EU FLEGT Action Plan, in 2003, the EU adopted new legislation called

1305-554: The United Kingdom, the Bribery Act 2010 requires companies using an "adequate procedures" defence to a charge of bribery to have undertaken due diligence on their business partners. Due diligence is described as "knowing exactly who you are dealing with". Official guidance suggests that "ask[ing] a few questions and do[ing] a few checks" can help to protect an organisation from taking on untrustworthy partners. Passed on May 25, 2011,

1350-426: The amount and quality of information available to decision makers and by ensuring that this information is systematically used to deliberate on the decision at hand and all its costs, benefits, and risks. The term "due diligence" can be read as "required carefulness" or "reasonable care" in general usage, and has been used in the literal sense of "requisite effort" since at least the mid- fifteenth century . It became

1395-433: The company whose equity they were selling, and as long as they disclosed to the investor what they found, they would not be found liable for non-disclosure of information that was not discovered in the process of that investigation. The broker-dealer community quickly institutionalized, as a standard practice, the conducting of due diligence investigations of any stock offerings in which they involved themselves. Originally

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1440-420: The endorsement of Ruggie's Guiding Principles for Business and Human Rights. Due diligence in civil procedure is the idea that reasonable investigation is necessary before certain kinds of relief are requested. For example, duly diligent efforts to locate and/or serve a party with civil process is frequently a requirement for a party seeking to use means other than personal service to obtain jurisdiction over

1485-530: The forest sector beyond what has actually been achieved in many industrialised nations." On 22 October 2015, the European Court of Auditors issued a report that was critical of the European Commission's management of the FLEGT Action Plan. The report included a detailed response and rebuttal from the European Commission . In July 2014, the European Commission initiated an independent evaluation of

1530-484: The implementation of the EU FLEGT Action Plan. The evaluation team was formed by independent experts from the TEREA – Terre Environnement Aménagement consultancy. The report of the independent evaluation, published on 4 May 2016, confirmed that the EU FLEGT Action Plan is a relevant and innovative response to the challenge of illegal logging and that the Action Plan had improved forest governance in all target countries. Since

1575-401: The partner country will implement to verify the legality of timber products and issue verified legal products with a FLEGT licence. As of June 2015, six countries were implementing VPAs they have ratified with the EU ( Cameroon , Central African Republic , Ghana , Liberia Indonesia , Republic of the Congo ) and nine more countries were negotiating Voluntary Partnership Agreements with

1620-428: The property of a tenant or other person. Due diligence is also a concept found in the civil litigation concept of a statute of limitations . Frequently, a statute of limitations begins to run against a plaintiff when that plaintiff knew or should have known had that plaintiff investigated the matter with due diligence that the plaintiff had a claim against a defendant. In this context, the term "due diligence" determines

1665-414: The provision of such rights and present the citizen before the court with jurisdiction. This also applies where the respective judicial system and/or prosecuting entity has current address or contact information on the named party and said party has made no attempt to evade notice of the prosecution of the action. In the United Kingdom, "proper use of a due diligence system" may be used as a defence against

1710-772: The remaining four countries ( Greece , Hungary , Romania and Spain). On 21 October 2015, WWF filed a complaint at the Federal Forest Office in Vienna against Austrian company Holzindustrie Schweighofer for alleged violations of the European Union Timber Regulation. Under the FLEGT Action Plan, in 2005, the EU adopted the FLEGT Regulation. The FLEGT Regulation empowers the European Commission to negotiate bilateral trade deals called Voluntary Partnership Agreements with timber-exporting countries. Under

1755-458: The requirements of the EUTR. The EUTR prohibits the placing onto the EU market of illegally harvested timber and timber products derived from such timber. It requires operators who place timber or timber products on the market for the first time to exercise due diligence to make sure that timber and timber products are legal. To facilitate the traceability of timber and timber products, the EUTR also requires traders who buy or sell timber products on

1800-598: The right procedures and practices to ensure a better approach to forest and timber supply chain management." Timber trade analyst Rupert Oliver said: "From what I've seen of FLEGT processes in Ghana, Liberia and Indonesia, they have succeeded in bringing groups together who for decades have been at loggerheads and including those who were excluded in the past. There is a strong sense of progress and direction which has often been lacking in other policy initiatives. More importantly they are succeeding in building consensus on key issues in

1845-514: The root causes of illegal logging", and gave evidence of improved governance in Ghana, Liberia and Vietnam. Anand Punja of the UK Timber Trade Federation said the Action Plan "has strongly help create a fairer and more partnership approach to sourcing than before. UK Importers are now much more likely to invest in their supply chains and work in partnership to help their suppliers, some of whom are smaller businesses, to put into place

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1890-419: The scope of a party's constructive knowledge , upon receiving notice of facts sufficient to constitute "inquiry notice" that alerts a would-be plaintiff that further investigation might reveal a cause of action. In criminal law , due diligence is the only available defense to a crime that is one of strict liability (i.e., a crime that only requires an actus reus and no mens rea ). Once the criminal offence

1935-465: The standard a prosecuting entity must satisfy in pursuing an action against a defendant, especially with regard to the provision of the Federal and State Constitutional and statutory right to a speedy trial or to have a warrant or detainer served in an action. In cases where a defendant is in any type of custodial situation where their freedom is constrained, it is solely the prosecuting entities duty to ensure

1980-407: The term was limited to public offerings of equity investments, but over time it has become associated with investigations of private mergers and acquisitions (M&A) as well. Due diligence takes different forms depending on its purpose: A due diligence process can be divided into nine distinct areas: It is essential that the concepts of valuations (shareholder value analysis) be considered in

2025-418: The world's first country to issue 'FLEGT' licences. As of 15 November 2016, Indonesia is issuing these licences, i.e. only timber that is FLEGT licensed can enter the EU. Among other VPA partner countries, Ghana is also in an advanced stage of implementing its timber legality assurance system ahead of FLEGT licensing. Critics of the FLEGT Action Plan point out that no FLEGT-licensed timber has yet arrived in

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