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One of the most important initial steps that you must consider in any international business transaction is vetting your prospective business partner. It has been my experience that many clients simply do not know where to start with this process. Although excited about the potential of working with a entity in a foreign nation or opening a new market, most are wary of the potential for fraud. It is crucial that you vet the prospective business partner and quickly determine whether they are a credible entity that can actual perform the business transaction or business relationship.
Over my career, I've frequently been engaged to conduct the vetting process for either a U.S. client or a U.K. client. As both an American attorney and an English Solicitor, I have a unique knowledge base about both countries and their respective legal systems that is extremely useful and cost-effective.
Here are a few of the initial questions I address when engaged to vet a prospective foreign business partner:
Who is the prospect and their principals?
Is the prospect credible?
Are there initial documents which detail a prospective business relationship or transaction?
If we enter into a business relationship, will the prospect be able to perform?
Does everything add up? Is this a real opportunity or a sophisticated trap?
Below I will briefly explain two recent situations in which I conducted due diligence review. I have purposely generalized these situations to ensure confidentiality.
Case Study One - U.S. Equipment Manufacturer
I recently advised an equipment manufacturer based in the United States (the "US Company") about a prospective United Kingdom business partner (the "UK Prospect"). The UK Prospect represented that it was an angel investor that could provide substantial funding for the US Company's expansion into new markets.
I conducted due diligence review of the UK Prospect, its principals, the status of the business entity in the United Kingdom, the entity's website, and other aspects of its business activities. I also reviewed the documents proposed by the UK Prospect which detailed the terms of the angel investment.
After my initial review, it became apparent that the UK Prospect was engaged in Advance Fee Fraud which is one of the most methods of international fraud. I recommended that the US Company terminate all discussions and seek other funding sources.
Case Study Two - U.S. Energy Sector Company
I recently advised a U.S. Energy Sector Company (the "US Company") about an energy project in a Pacific Rim nation (the "Pacific Prospect").
In conducting due diligence review of the Pacific Prospect, I reviewed an impressive Deal Memorandum that had substantial engineering data about the Pacific Prospect's exploration of energy reserves and the potential for huge profits. Unfortunately, the Deal Memorandum did not address key points that would be crucial to the US Company seriously considering a business relationship. Rather than seeking to clarify these key points and negotiating further with the Pacific Prospect, it became obvious that there was no reason to do so. My review also produced a glaring problem - one of the Pacific Prospect's principals was the subject of a criminal prosecution for fraud.
DO YOU NEED TO VET A PROSPECTIVE FOREIGN BUSINESS PARTNER?
It's been my experience that clients want to rule out fraud prior to spending considerable time, effort, and money exploring a potential business relationship or transaction with a prospective foreign partner. If you need to determine whether a prospective foreign business partner is credible, contact me so we can discuss your situation. I can help you avoid the potential landmines.