International Due Diligence: Doing Your Homework

Investors around the world are seeking out new and profitable opportunities beyond their own national borders. Investment opportunities are hard to find in the global recession, so managers and business owners and CEO’s are looking to other countries and even other continents to find a more efficient way to compete in the new (and grim) financial landscape. This trend has created a sharp increase in the number of international business deals and foreign investment, especially in booming nations and populations of China and India. Many companies are eager to make a deal, snag an opportunity or find a lower cost supplier, and in the gold rush, many fail to do their due diligence. In today’s high risk environment, not doing your homework can be very costly.

International due diligence is the process of verifying individuals and organizations in other countries to minimize the risk in global business transactions and investment. It is a valuable tool that can save a company from serious negative publicity, serious financial losses or even bankruptcy. It is a form of insurance that can verify new business contacts, new suppliers, small business operations overseas, and determine if a person or business (or stock) is what it appears to be. It’s common news these days that more and more corporations down to individuals are being defrauded in international business and investment. The risk is high, and the demand for professional verification services is growing. Doing businesses offshore has serious potential, but there are also risks that should be identified and minimized before moving forward.

Victims abound in the U.K., U.S., Canada and Australia. Relatively rich countries in the developed world are seeking investment (typically) in developing nations, where there is less oversight, less regulation and less transparency. The result? High risk for fraud and scams. Experience investors know that even if you have met a company representative in Beijing, or a sales person in London, or a CEO in New Delhi, there is still significant risk on the table. Financial statements and operation figures can be falsified, exaggerated, etc. Offices may exist on paper, but when an investigator visits the address, it may or may not exist, or be as claimed. Contracts and relationships with other companies may not be true, and even if a company in China, India, Nigeria or Ghana or South Africa or Brazil claims to have IBM or Microsoft or General Electric as it’s major customer, such relationships should be verified in the due diligence and verification process.

In recent years, companies in the Fortune 500 have been seriously threatened by the risk from false companies based in China, India and Southeast Asia. Fraud operations in the Philippines and Malaysia are growing, and investments made in companies based in Manila and Kuala Lumpur are at high risk. Russia has presented serious challenges as well, and investments in Russia (a huge market with a lot of opportunity) are at serious risk for scams, business fraud, stock scams and misrepresentation as criminal operations operate in an organized and effective fashion from Moscow and St. Petersburg. Gold scams and precious metals and commodity investment scams are also out of control and being run by organized criminal groups in Ghana, Nigeria and Benin in West Africa. To make matters worse, even if the business contact or company never mentions one of these countries, it doesn’t mean the risk is gone. In fact, many scammers operating from these countries use VOIP (Voice Over Internet Protocol) such as Skype to use local phone numbers in New York or London or Hong Kong, to pose as a local or business based in that country. It’s becoming very difficult to know who is who, and where he or she is operating from.

International due diligence is a form of insurance and doing your homework. International private investigators are now in high demand, as businesses and individuals see the need to verify and minimize the risk. Initial screening and scrutiny should always done in house, but before a deal or agreement is reached, experts advise relying on a professional private investigator who has offices or field investigators on the ground where you need them, to verify offices, relationships, operations, employees, management, business registrations and licensing, reputation and more. In many cases, having a professional and highly trained investigator on the ground with local contacts, access to local records, and who speaks the same language and culture is the only way to obtain the evidence and verify the information in question. Be safe and verify.
Best of luck,

A Hathaway
© 2011 A Hathaway