This article was originally published in Bloomberg Law Big Business. Reprinted with permission.

This may be private equity’s golden age, a time when firms are raising record sums and are poised to pour that capital—more than a trillion dollars, by some accounts—into investments across a host of industries.

With opportunity, however, comes increasing regulatory scrutiny. In 2016, the Securities and Exchange Commission created a new private fund unit focused squarely on FCPA actions. The unit is looking at funds and their portfolio companies and is working in tandem with the criminal and civil fraud divisions at the U.S. Department of Justice.

Clearly U.S. and international officials have been stepping up enforcement activities around private equity, multiplying the compliance risks for funds and their holdings.

For private equity managers, tougher oversight should trigger deeper due diligence, as well as stronger compliance management and training. Not only must PE firms look more closely at their investors and potential acquisitions, but at the ongoing operations of their portfolio companies.

But it’s easier said than done. With so much investable capital at hand, competition among firms for high-value acquisitions is expected to escalate—putting even more pressure on firms to get deals done faster. It’s a scenario unlikely to promote an intense new focus on due diligence and compliance.

False Claims Clash

In the United States, corruption is just one area of focus for regulators looking at private equity compliance.

In February, the Justice Department alleged in a False Claims Act (FCA) lawsuit, U.S. ex rel. Medrano Diabetic Care Rx, LLC, that a compounding pharmacy company had defrauded the U.S. military’s healthcare program out of $68 million.

In a rare move, the DOJ also charged the company’s owner, a private equity fund.

Lawyers who monitor the DOJ’s enforcement efforts have cited the case as a wake-up call for the private equity industry. As one prominent Washington law firm put it, “The case should serve as a message to other private equity firms that have portfolio companies whose businesses rely on government contracts: You, too, could face the same FCA exposure as your portfolio companies.”

The case involved accusations that the pharmacy company’s marketers paid kickbacks to boost sales, a classic False Claims Act scenario. So how did the PE fund become a target? Fund managers had appointed board members and recommended one of their partners as CEO. They also had played a significant role in determining the company’s financial strategy, according to the DOJ.

An Ongoing Responsibility

While the facts may be unique, the pharmacy case points to a larger issue for funds: understanding the ongoing compliance obligations of a company and periodically reviewing its compliance programs. Thorough due diligence in the acquisition phase of an investment is only the first step of the process. On an ongoing basis, funds should be ensuring that the companies they acquire are adhering to domestic and international regulations.

When private equity firms invest in smaller enterprises or start-ups, those responsibilities often increase. Generally, start-ups have focused on growth and innovation, but not necessarily on the appropriate internal controls needed for a more mature, regulated business. The onus falls on the owner—in other words, the private equity fund—to ensure that the company understands its obligations and has received the education needed to fulfill them.

For the company and the owner this can lead to some dramatic changes. The company may need to halt some practices and begin others to ensure that it adheres to regulatory requirements. On the downside, this could lead to additional capital needs and affect sales, which in turn, could affect the company’s profitability.

On the upside, the private equity firm and its portfolio company will avoid potential public scandal, fines and even criminal charges. And on a more positive note, they may also gain additional value in the marketplace. A profitable company with an effective compliance program is likely to be viewed as a less risky investment by potential acquirers.

Know Your Customer

The focus on regulation and compliance should include more than just acquisitions and ongoing investments. Funds face potential risks from their investors as well.

Know-Your-Customer (KYC) rules have proliferated in recent years to combat money laundering, putting fund managers on the hook for doing deeper due diligence into their customers. Funds face the risk of doing business with politically exposed persons, government agencies or entities under sanction if they don’t closely examine the source of an investment.

With the increasing number of private equity deals, and the global nature of deal making, tackling the due diligence process is becoming far more complex. Though they may be aware of the areas that require deeper diligence, firms may not have the time or resources on hand to perform adequate research.

In those cases, finding the right outside help can ensure that firms are assessing their customers and potential acquisitions with the level of detail needed to satisfy stringent compliance requirements. Without this process, firms may forge deals and recruit customers who bring with them unappetizing levels of financial and regulatory risk.