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4 Keys to Improve International Due Diligence

Posted On   date05/10/2015

4 Keys to Improve International Due Diligence

Avoiding due diligence can expose your company to unnecessary risk

Businesses with operations in two or more countries, franchises and companies that outsource part of their operations abroad should pay special attention to international investigations, particularly their due diligence process and their international employment screening. According to Wymoo private investigators, many companies fail to properly screen their business partners and employment candidates, which may result in fraud, financial loss, trouble with compliance and more.

Multinational business has led to an exponential increase in the risks associated with investment, candidate recruiting, and contingent workforce. There is a clear concern for companies all around the world about fraud, bribery, corruption and other issues, which translates into a need to conduct employment background checks and international due diligence. However  many times, this need turns into poorly executed screening processes, either because the company executives are not yet convinced about the value of the process itself and they are trying to “save some money and time”, or because there is not enough expertise in the matter within the company.

The need to conduct international due diligence for new business deals derives especially from the fact that most developed countries have regulations that punish harshly those companies that engage in corrupt practices. For instance, the United States has a federal anti-corruption legislation for international business since 1977, called the Foreign Corrupt Practices Act (FCPA). This regulation helps reduce the risk of inheriting financial liability and reputational damage that may come from another party´s prior violations when individuals or companies acquire a business overseas, when they´re merging, or when they are conducting international investment transactions –like trading securities-. The FCPA is a great resource even for business deals were none of the parties come from the United States because it offers a guide to fight corruption worldwide.

In developing countries, searching a database or the Internet is negligent, and not a real verification process.  Verifying an individual or company in another country requires trained investigators who speak the language, have access to local records, and have experience in investigation!

Even though the FCPA has been hanging around for more than 30 years, it wasn´t until the past decade that companies really started to care about anti-corruption international due diligence.  Most anti-corruption regulations and agreements –like the FCPA- apply to all international business transactions, whether it’s a foreign company trading securities in a foreign market, a small business with international operations, they even apply to individuals performing any kind of business or investment in a foreign country. So screening new business deals should not be restricted to big corporations or to M&A´s, but to all deals that involve two or more countries or people from abroad.

The truth is that when it comes to information, organizations and individuals need to focus on getting reliable and accurate data that can help them make wise business decisions, not on saving money.

How can your organization improve international due diligence?

  1. Establish a base line for your investigations. It is important to have an internal procedure in place to make sure that all new business deals and all new candidates will be examined in the same way, regardless of the country, the investigation provider or the specific situation. Risk mitigation practices involve careful design of procedures and protocols.
  2. Decide what is relevant for your organization. Relevant information will most likely not be included in a database search. Thorough investigations will provide with relevant data, but they will also require the experience and knowledge of ground investigators in the country (or countries) involved. For instance, some organizations may consider that a global asset search is more relevant than verifying credentials. Deciding what your due diligence can´t miss, and in which cases certain verifications can be avoided, is one of the initial basic steps.
  3. Pay special attention to confidentiality. The information revealed throughout an investigation process could be worth a fortune in the wrong hands and even put you at risk. Make sure confidentiality agreements and good communication practices are in place.
  4. Hire the right international investigation company. If something is clear with international investigations is that every country is different. Laws, languages, who and how they manage records all change from one place to another, but despite that you will need to ensure that your company is getting the right answers to all its questions. When researching companies that offer international investigation services, be sure to look for a few key factors. Make sure they have investigators in all parts of the world. Be sure they are compliant with any laws or general rules of conduct when doing their work. Pay them securely for their services and have everything in writing, especially stating the confidentiality of what transpires.

Remember if you’re trying to verify a person or company in China, Russia, Ukraine, Philippines, Romania, Malaysia, South Africa, Ghana, Brazil or another foreign country, things do not work as they do in the U.S. or U.K., or Canada or Australia.  These developing countries are not transparent, and records are not always electronic or public.  Verifying overseas and properly mitigating risk requires gathering evidence and accessing public and government records, obtaining independent references, verifying ID and documents, checking business, reputation and media records, and much more.

Checking criminal records and databases is not due diligence, and not an investigation.

Having reliable and accurate information will allow you to look forward to the potential of business growth and increased profits.  Don’t mourn the loss of a potential partner if the investigation turns up something you cannot work with. After all, that’s why you contacted a professional – so you can make an informed decision.  Proper international due diligence is a smart choice.

C. Wright

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