Due Diligence Across Borders

By Ann Longmore-Etheridge

Doing business in multiple countries can be beneficial, as can partnering with local firms in countries where the company is not headquartered. Local partners bring new markets, new customers, new suppliers, and a wealth of other tangible and intangible benefits. But entering into these partnerships increases the chance that the company will end up embroiled in legal controversy, such as being accused of breaking national and international antibribery and anticorruption laws. Thus, a thorough due-diligence investigation must be carried out before any alliance is forged.

There should be a full compliance review in a timely fashion, says Michael Runyan, CPP, who was the managing director of Pinkerton Consulting and Investigation’s Washington, D.C., office until earlier this year. That often isn’t done because “it takes too long…[and] the business development team finds it a lot more advantageous to shoot first and ask questions later,” says Runyan, who helped Pinkerton design due-diligence programs for its Fortune 500 and multinational clients. He now consults for Pinkerton.

Unfortunately, large companies “have so many different moving parts [that] communication breaks down. Business development doesn’t necessarily ever talk to security or legal before it tries to engage a business partner,” he says.

Before a due-diligence investigation takes place, the prospective partner should be asked to provide information for verification that is within the laws of that nation. Using that information, the company must do a full background check on the principals of the prospective partner. When that was done by Pinkerton on behalf of its clients, says Runyan, investigators examined proprietary and open sources to gain as much information as possible about the potential partner, including “its history, its financial status, any debarments, any legal actions, [and] any ongoing investigations—all to see if there is anything out there.”

To do this correctly, the investigator needs information from the client to know “exactly what these partners would be involved in with the company and why they are advantageous to the company…. A lot of times this is overlooked,” he says.
Armed with the lowdown on what’s in it for the client company, investigators then want to ascertain what’s in it for the potential new partner. “You want to know what their interests really are, and sometimes that is not conveyed in the initial business discussions,” says Runyan.



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