Risk-Based Due Diligence
Aligning grantmaking oversight with real-world risk
Paragon’s Four-Tier Due Diligence Framework
Paragon’s Four-Tier Due Diligence Framework provides funders with a scalable, risk-proportionate approach to cross-border grantmaking. Every grantee undergoes a baseline level of anti-terrorist financing screening, with structured pathways for escalation when specific risk factors emerge. Each tier builds on the last, incorporating progressively deeper tools, ranging from sanctions and terrorism checks to adverse media, PEP screening, governance reviews, and full integrity due diligence with registry-backed verification. This protocol helps ensure that risks are addressed proportionately, with additional steps taken only when warranted. This structured approach allows funders to allocate resources efficiently while supporting alignment with IRS, OFAC, FATF, and global standards, giving greater confidence that philanthropic capital reaches credible, transparent, and mission-aligned partners, even in more complex or higher-risk environments.
Funders must understand how to assess risk across factors like corruption, financial controls, terrorism exposure, and re-granting structures. A strategic, risk-based approach to due diligence enables funders to tailor their vetting to context—ensuring compliance, credibility, and mission alignment wherever they give.
Tier 1 screening begins with core information collected from the grantee, including legal and alternate names, jurisdictions of operation, nonprofit registration details, date of establishment, disclosures of any controlling entities, identification of key employees, board members, and founders, and the grantee’s declared banks and intermediaries (including SWIFT codes). At this stage, the grantee and all key persons are screened against major global sanctions and terrorism lists, including those maintained by the U.S. Treasury (OFAC), European Union (EU), United Nations (UN), UK HM Treasury, FBI, Interpol, and FinCEN. Declared banks are likewise screened against sanctions lists and FinCEN designations.
Escalation to Tier 2 is recommended when anomalies arise, such as geographic risk factors, government control disclosures, multi-jurisdictional operations, registration inconsistencies, special foreign funding registration requirements, or banking corridors with higher risk. Tier 2 expands scope by adding national and local sanctions checks through Dow Jones RiskCenter, which identify entities flagged by in-country authorities but not always captured on global lists. This step is especially important in higher-risk geographies where local enforcement actions may provide early warning. Tier 2 also adds terrorism-focused adverse media screening of entities, key persons, and banks, and review of anti-terrorism and vendor and subcontractor selection policies.
Tier 3 expands diligence to address corruption, governance, and reputational risks that may affect a grantee’s credibility. Escalation is recommended when risks include corruption, fraud, organized crime, political exposure, material subcontractors or vendors, governance gaps, or elevated-risk geographies. Screening at this level includes PEP checks and reputational adverse media across the entity, key persons, banks, and disclosed vendors/subcontractors. Control relationships are screened at the entity-name level against sanctions, PEP, and adverse media, with full reviews available under higher tiers if warranted. Governance and accountability policies are reviewed alongside procurement and conflict of interest policies, and geography risk ratings are applied. Declared intermediary banks are also screened for sanctions and adverse media to identify vulnerabilities in payment routes. This stage delivers a broad integrity review of the grantee and its ecosystem.
Tier 4 is the most comprehensive level of review, providing registry-verified checks and expanded documentation to support client decision-making in higher-risk or complex environments. Escalation to Tier 4 is recommended when material red flags surface that warrant evidence-based verification. Triggers may include: discrepancies between certificates and disclosures; inability to verify subcontractors or vendors through Dow Jones data; adverse media reporting allegations of corruption, fraud, organized crime, or terrorism financing; high-level PEP exposure in corruption-prone environments; or beneficiary and intermediary banks with significant adverse media or regulatory or enforcement history.
At this stage, Paragon leverages integrity due diligence tools (LexisNexis) to conduct registry and official filing checks, litigation and enforcement record searches, insolvency and regulatory filings review, and expanded ownership mapping. Registry-backed checks are also applied, where applicable, to banks, vendors, subcontractors, and controlling entities. Optional targeted screening of major funders is available when those funders are material, government-linked, or reputationally sensitive. Tier 4 concludes with an Integrity Due Diligence review that documents evidence-based findings and delivers clear, registry-verified reporting that equips clients for decision-making in higher-risk or more complex contexts.
