An Investor’s Guide to Due Diligence in Colombia

Performing proper due diligence before investing or operating abroad can mitigate negative consequences and ensure a successful business.

This guide provides an overview of key due diligence concerns in Colombia and demonstrates how following these best practices can protect your investment and improve your business’s strategy.

What is due diligence?

Due diligence refers to the process of investigating all aspects of potential and current business dealings with an eye for risk factors. These investigations often include activities like researching clients and service providers, vetting real estate transactions, following compliance measures, and understanding laws that govern businesses.

Key aspects of comprehensive due diligence in Colombia

Colombia provides a unique and exciting opportunity for lucrative investments, especially in agriculture, real estate, tourism, and tech. Each industry and business model presents unique risks and obligations that diligent investors will thoroughly research beforehand.

In the Colombian context, the following due diligence areas are of particular importance.

Ground due diligence

Ground due diligence, also known as land due diligence, refers to the process of surveying the physical properties of a piece of real estate before purchase. Real estate due diligence, which is often closely tied to ground due diligence, implies performing background research on real estate to be acquired.

Investors will want to perform a title search to ensure a property is legally owned (and by the person who claims to be the owner); has no outstanding encumbrances, liens, or legal actions; and is free of incomplete or illicit transactions. Performing land due diligence also ensures that the property to be acquired aligns with the conditions and descriptions advertised and that the real estate is adequately zoned for the proposed use.

Ground due diligence is especially important in Colombia, where property (especially rural tracts) can have a muddled transaction history or be linked to illicit actors. Doing your “homework” ahead of time can prevent you from an illegal property transaction and grave consequences, like land seizure.

Corporate due diligence

The Colombian government makes an effort to ensure that businesses operate within the law and respect the rights of their employees. If you’re considering opening a business in Colombia, your corporate due diligence processes must include understanding and implementing local labor laws, respecting Colombian tax codes, and performing recommended or mandated compliance procedures.

Compliance and due diligence go hand-in-hand in Colombia, as businesses are held to the country’s LAFT (the Spanish acronym translating to Money Laundering and Financing Terrorism) policies. These policies aim to mitigate illegal dealings, and corporations are responsible for implementing due diligence procedures, like vetting consumers (“know your customer”/KYC) or investigating transactions for potential signs of money laundering. Not only will your company remain compliant by following these due diligence best practices, but it will also avoid entering into business with bad actors.

Labor due diligence

Having a profound understanding of Colombian labor laws may fall under basic corporate due diligence, but it’s wise to treat this aspect of operation as its own due diligence category. Businesses should ensure that employee contracts align with local laws and investigate any pending labor disputes.

Environmental due diligence

All Colombian businesses must comply with local environmental laws and regulations. Thus, it’s important to research your business’s specific role in upholding these standards. Operations in the agriculture, construction, and extraction sectors must be uniquely aware of their obligations.

Businesses should also perform a thorough risk assessment to discover what, if any, environmental issues their operations could generate.

Market and currency analysis

Investors operating in a foreign market, like Colombia, must research market trends and conditions and currency fluctuations. This due diligence helps inform a beneficial currency management strategy and allows investors to mitigate instability and thoroughly understand their industry’s competitive landscape.

Intellectual property due diligence

If you’re considering investing in or acquiring an existing operation, you’ll want to perform intellectual property due diligence. This process involves investigating the company’s trademarks, copyrights, trade secrets, and patents, ensuring that these assets are legally owned and that the operation is not at risk of violating intellectual property rights.

Tips for performing due diligence in Colombia

Due diligence processes take time but are well worth the effort, helping your business avoid risks and establish safe, profitable strategies. Here are a few tips for performing due diligence well with respect to your foreign investment.

• Get local advising: Local legal and investment experts are an excellent source of information on Colombian laws, regulations, taxes, and other key obligations to which your business will be held. They’re also aware of nuances in the Colombian context and can more easily spot red flags like bad actors, paperwork inconsistencies, and holes in an operation’s compliance strategy than someone new to the country could. What’s more, local experts can help you navigate the bureaucratic procedures often associated with due diligence, like performing a title search or survey on real estate.
• Make due diligence a habit: Due diligence should not only be performed at the outset of an operation but continually. Operations must constantly vet new consumers, service providers, and stakeholders. Employees should be trained to spot signs of illegal activity, fraud, and money laundering.

Let the experts at LaGrande Global guide you

LaGrande Global offers tailored due diligence services that include extensive risk assessments, financial analysis, and compliance guidance.

The professionals at LaGrande Global are experts in the Colombian local context and can help investors in tech, health tech, tourism, agriculture, and other industries move confidently into a new market.