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A Due Diligence Policy outlines how an organization systematically evaluates business partners, investments, and transactions to manage risks and meet legal obligations. In Germany, these policies help companies comply with key requirements under the Supply Chain Due Diligence Act (LkSG) and anti-money laundering regulations.

The policy sets clear procedures for investigating potential partners, documenting findings, and making informed decisions. It typically includes risk assessment checklists, verification steps for financial records, and protocols for monitoring ongoing relationships. German companies must pay special attention to human rights, environmental impacts, and compliance with EU trade restrictions when conducting their due diligence reviews.

You need a Due Diligence Policy when expanding your business relationships in Germany, especially before entering major contracts, mergers, or supply chain partnerships. It becomes essential when your company reaches 3,000 employees (dropping to 1,000 in 2024) under the Supply Chain Due Diligence Act, or when dealing with high-risk sectors like manufacturing and international trade.

The policy proves particularly valuable during regulatory audits, when screening new business partners, or when entering markets with heightened compliance requirements. German companies also rely on these policies when conducting environmental impact assessments, evaluating human rights practices, or responding to increased scrutiny from authorities about their supply chain practices.

• Basic Supply Chain Policy: Focuses on supplier screening and monitoring, typically used by mid-sized German companies to meet LkSG requirements
• Comprehensive Corporate Policy: Covers all business relationships, including mergers, acquisitions, and partnerships, with detailed risk assessment procedures
• Environmental Due Diligence Policy: Specializes in environmental impact evaluation and ESG compliance, particularly important for manufacturing sectors
• Human Rights Policy: Centers on human rights risks in business operations and supply chains, as required by German legislation
• Financial Due Diligence Policy: Emphasizes financial risk assessment, anti-money laundering measures, and compliance with German banking regulations

• Legal Departments: Draft and maintain the Due Diligence Policy, ensuring it aligns with German and EU regulations
• Compliance Officers: Oversee daily implementation, monitor adherence, and update procedures based on regulatory changes
• Executive Management: Approve the policy, allocate resources, and bear ultimate responsibility for due diligence compliance
• Procurement Teams: Apply the policy when evaluating suppliers and managing supply chain relationships
• Risk Management Teams: Use the policy to assess potential business partners and monitor ongoing relationships
• External Auditors: Review policy implementation and verify compliance with German due diligence requirements

• Risk Assessment: Map your business relationships, supply chains, and potential risk areas under German law
• Legal Requirements: Review the LkSG and relevant EU regulations to identify mandatory due diligence obligations
• Internal Processes: Document existing procedures for partner screening and risk management
• Stakeholder Input: Gather feedback from compliance, legal, and operations teams on practical requirements
• Technology Review: Identify tools and systems needed for due diligence monitoring
• Documentation Rules: Establish clear record-keeping protocols that satisfy German regulatory requirements
• Implementation Plan: Create training materials and communication strategies for policy rollout

• Policy Scope: Clear definition of business activities and relationships covered under German due diligence laws
• Risk Assessment Framework: Detailed methodology for identifying and evaluating human rights and environmental risks
• Compliance Procedures: Step-by-step processes for conducting due diligence aligned with LkSG requirements
• Reporting Mechanisms: Systems for documenting findings and maintaining required records
• Remediation Protocols: Procedures for addressing identified violations or risks
• Responsibility Assignment: Clear designation of roles and accountability within the organization
• Review Schedule: Timeline for regular policy updates and effectiveness assessments

While a Due Diligence Policy and a Due Diligence Checklist may seem similar, they serve distinct purposes in German business operations. The policy provides the overarching framework and principles, while the checklist is a practical tool for implementation.

• Scope and Purpose: A policy establishes comprehensive guidelines and procedures for risk assessment, while a checklist provides specific items to verify during individual due diligence reviews
• Legal Standing: The policy serves as a binding corporate document that demonstrates compliance with LkSG requirements, whereas a checklist is an operational tool without independent legal force
• Flexibility: Policies require formal amendment processes and leadership approval for changes, while checklists can be readily adapted to specific transactions or situations
• Documentation Value: The policy proves systematic approach to regulators, while completed checklists evidence specific due diligence actions taken