Enhanced Due Diligence in New Global Markets can be key to tackle frauds and business losses

For those in a global supply chain, managing everything from handling and distribution of materials and finished products, production, packaging, transportation, security to inventory and warehousing proves to be a gargantuan task. Despite that, before entering any business relationship with any company or individual based in a foreign country, it is vital that companies obtain a prior understanding to make informed business judgments about potential transactions and relationships.

A lot of businesses which operate in foreign markets have been affected by the ‘fly-by-night middlemen’ who pretend to be genuine manufacturers or suppliers. In a popular scam in 2017, Bangladeshi garment exporters fell a victim to fraudulence, with some 26 companies apparently manufacturing goods worth around Tk 600 crore for a non-existent British company.

Similarly, in July 2019, a major scam stuck Indian basmati rice exporters in which they were duped of 6000-tonnes by a non-existent identity in Dubai. The conman Shaikh Tariq Awais who projected himself as multi-millionaire business owner disappeared without a trace. One of the exporters Vinod Goel of Karnal’s NM Food Impex company told Gulf News that the due diligence undertaken by the exporters was limited to visiting Al Rawnaq Al Thahbhi’s office, checking its trade license, and meeting its general manager.

To avoid being deceived in the international marketplace, it becomes essential to critically validate that any company or a person that a company sells to and is buying from is genuine and has a good market repute. Although, it provides the companies with a means to both identify the risks and confirm (or otherwise) the information provided to them by a third party, gathering independent information to gain an understanding of the integrity through online sources still remains a tedious task in many developing media markets.

For instance, a legal representative of Hong-Kong based Norwest Industries, a major garment exporter in South Asia, stated that many of their industry in Bangladesh seek updates about legal proceedings, and duly inform local bodies and trade associations about cases against any individual or corporate. In their recent case against a Bangladesh-based company viz., Trendz Corporation and the two other accused who were absconding — Rahul Shukla, and Siddharth Shukla, a notice to appear was published on August 19, 2019, in Bangladesh’s Financial Express and Prothom Alom.

However, most of such local information of legal allegation would be inaccessible to a buyer based in another country. Therefore, it is essential to conduct discrete inquiries in other geographies, and go the extra step of enlisting local human intelligence. With the advancing ways of frauds in businesses, it is often difficult for a company to review and identify information or gauge local market reputation of businesses; the failure to spot links to sanctioned third-parties or high-risk individuals can be devastating.  Today, many consulting firms have come up to provide Risk Due Diligence in overseas markets, and ensure background checks as a service which is provided to major industry players. 

This not only helps companies make informed decisions, but also gain a perspective on the integrity of a person or firm. They are helping businesses in the sector identify red flags such as allegations of fraud and corruption, or any unfavorable associations. SMEs or new companies which operate on tight budgets can also save money by setting up an in-house due diligence center, which can operate standards beyond a regular KYC or third party checklist.

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