For due diligence on third parties, what’s adequate? Simple searches of databases often serve as a baseline. But are the databases available in the marketplace defensible as the right tool for the job?
If the due diligence target is in a non-English speaking country, database-only searches on the subject will miss out on potentially significant information available only in the local language.
China is a good example of where database searches as a sole source of information may miss relevant derogatory information. There are countless reports in Chinese media of corruption, investigations, legal actions, and similar issues that aren’t published in English. As a result, the names never make their way to most databases.
Further, transliterations of Chinese names into English simply do not work as a reliable means of conducting searches. And the Chinese justice system has literally thousands of courts spread across the provinces and municipalities. Many court records, at least in a basic form, are available online only if you can read and write Chinese and know where to focus your search.
Similarly, Administration for Industry Commerce (AIC) records are generally online and contain company registration information. While useful for insuring the target company in question is indeed a registered entity in China, important details such as shareholding are often only released through in-person visits to local AIC offices.
A recently conducted review of a Chinese entity Zhengzhou Coal Industry Group illustrates the sort of information available in the public domain in China that would not likely be picked up from database searches alone.
While some important information was picked up from English media as this is a very high profile entity, issues surrounding social accountability, additional corruption issues and litigation were not present in the databases. Similarly, identifying the corporate ownership through official sources revealed additional companies that would have gone unreported.
A copy of the report on Zhengzhou Coal Industry Group can be downloaded here.
Paul Johnson is CEO of ethiXbase360 Due Diligence. He can be contacted here.