Conducting due diligence on international business partners has become a necessary and critical practice for companies—and for CFOs—operating in global jurisdictions. There are multiple factors driving the need for better compliance in this area. The US Foreign Corrupt Practices Act (FCPA), UK Bribery Act, and multinational agreements, to name a few, oblige companies to “know” their foreign counterparts.
A recent report released by the Deloitte Forensic Center entitled “The Case for Getting Global Business Partners” explores options for information-gathering and examines factors in the due diligence process for senior business leaders to consider in investigating international business partners.
Enforcement actions by the US Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) for insufficient due diligence on international business partners are underscoring the point that a cursory approach no longer suffices. What seems clear is that companies will be expected to conduct a deeper, more systematic investigation of potential international business partners, and CFOs and others overseeing risk management can lead that effort by establishing a due diligence process that involves collecting information from the business partner, verifying the data, and following up on identified red flags.
“Common due diligence pitfalls include failing to conduct timely and sufficient due diligence, failing to adequately verify information provided by business partners, and failing to act on identified red flags” James Babb, CFO program leader at Deloitte Middle East, said.
While there is no law or regulation specifying the process for international due diligence, generally, companies should consider taking the following three steps:
“While the due diligence effort may lengthen the start-up time for a new business partner relationship, failing to do so can have considerable negative financial and operational repercussions for companies seeking to conduct business internationally,” Babb, said. “It is far better to proceed slowly, carefully, and thoroughly with any new business relationship”.