International Due Diligence Lowering the Risk of Global Business Fraud

 Money matters. Asset managers, hard working citizens and politicians know. It was very clear this year that criminals are also stepping up their money making activities, costing business leaders time and company budgets on fighting the fraud, and the risk from scams and other forms of shady business deals. Experts warn that internet scams are no longer obvious and easy to ignore. Many professional scammers now target CEO’s and other business managers. This is where the real money is. International business is at the highest risk for fraud and misrepresentation, and due diligence is now more important than ever, as managers increasingly rely on the tool.

International due diligence by business managers and global corporations increased significantly in 2011. Industry observers say requests for due diligence by professional private investigation firms regarding due diligence on a business increased approximately 40% over 2010 levels, driven largely by the growing risk from business fraud and scams. With the global recession slowly improving, but still hanging in the balance, many businesses and national economies are struggling for growth. It’s hard to find opportunities in the domestic market, so many business leaders are looking abroad. When small companies and corporations have to seek out new suppliers, new investment and new partnerships in other countries, there is a serious increase in risk.

Some examples of companies losing millions, and even some bankruptcies, as well as major news stories in the media regarding China stock market scams, Russia hackers, or West Africa fraud and gold scams, and many others, has educated the public about the risk for fraud online and offline. More individuals and managers are now doing their homework, and hiring a professional.

Private investigation agencies like Wymoo International reported an increase in international due diligence cases for 2011. Among the highest risk countries, according to the firm, are the UAE, China, Malaysia, Russia, the Ukraine, the Philippines, Ghana, Nigeria, South Africa and Brazil. However, experts warn that no country is immune from fraud and even the U.K. saw a sharp increase in business fraud case, according to officials at the Metropolitan Police Service in London. The battle is on for profits. Managers are looking in developing countries for opportunity, and criminals in developing and developed countries are looking to cash in on the fact.

Criminals have been reported and arrested in places such as Canada and Switzerland and even Australia. The point is, not country is completely risk free. When working with international or foreign business partners, the potential for fraud is three to four times greater. Often relationships or investments are found on the internet, and verifying people or companies in another country can be a nearly impossible task. In most cases, it requires having a trained investigator in the local area where you need him to verify operations, reputations, facilities and offices, business registration and filings, and other important factors of the case to avoid the pitfall of fraud and scam.

In places like Kuala Lumpur, Hong Kong, Shanghai, Geneva and Moscow, fake companies are being set up and registered with government agencies. Bank accounts are also set up using this fake company information and aliases or fake IDs are also often used. Very professional appearing websites are then created, and then the criminals make their move. They wait for the business or person to contact them, or they contact the business person directly, or even attend a conference where they can mingle with many people at a time. They leave their business card, they talk a good talk, and they propose an attractive offer or partnership. They may even have a stock listed in the U.S. but with the business based in China! The scams are growing in complexity and verifying foreign contacts is critical. Official documents can be presented to build trust and so on.

Finally, as in nearly all the scams, a request for payment will be made. This can be for a down payment, a payment for shipping, a guarantees, or just to check the victim’s “credit”. In other cases, the criminal may not ask for payment, but rather he will gather sufficient information from the victim so that his identity can be stolen, or other important business records can be stolen.

Don’t think it can’t happen to you. Some of the best minds in your industry or investments may be working for the other side – the criminal side. It can be highly profitable and tracking these criminals down and having them prosecuted can be a major challenge. Foreign and international investment, international suppliers, China stocks, foreign business partners or even Africa gold mines can offer real rewards. Merging with a company in Malaysia or Hong Kong or forming a partnership can be great opportunity. Screening the real deals from the criminals is key. They are out there, and their operations are growing. Be smart. Know the risk and verify, and then decide.

All the best,

S. Birch
© 2011 S. Birch