Saturday, September 14, 2013


New laws that, in effect, criminalize due diligence investigations, are making it extremely difficult to obtain the amount of information necessary to minimize risk levels, for foreign companies and financial institutions, prior to initiating business transactions in China. Western researchers working in China have been arrested, and access to personal and corporate records severely restricted, if not totally denied, to them.

Whether these new restrictions are now in place to discourage foreign companies to compete, in China, with local firms, or for some other, darker purpose, the net result is that, with rare exceptions, obtaining thorough due diligence reports on Chinese companies, and nationals, will no longer be assured. Enhanced due diligence on Chinese targets will be completely unavailable, and proper protection of clients in high-risk matters cannot be assured.

The alternative, obtaining business intelligence through illicit channels, exposes the researcher, and his or her company, and could even bring down official wrath on the foreign firm seeking to do business in China. This is unacceptable for most risk managers.

Therefore, inasmuch as the reliable detection of prior history of fraud, and other financial crime, cannot be assured, with respect to prospective Chinese partners, suppliers, major customers, and even government-controlled companies, risk levels must be raised at this time.

Review the evidence, and make your own, educated decision, based upon the facts, but I recommend that you raise Country Risk on China, due to these new official impediments to due diligence.


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