In our first blog post, we defined the burden facing due diligence analysts: the importance, scope and challenges of the due diligence process are increasing. Analysis is the real value-add of the due diligence project, but information collection comes first, and that’s where the challenges of time, cost and quality can upend a project. So how does an analyst gather information in a way that is efficient, reliable and scalable, and that leaves her with the time and resources to focus on analysis? In this post, we focus on the first question a due diligence analyst faces on a new project: What information can be found?
The question seems simple to answer – but it’s not. For a due diligence team with global responsibilities, it is exceedingly difficult to keep up to date with the current resources and procedures in every jurisdiction. Often, the due diligence analyst must rely on her in-country subcontractors to answer many of these questions. But in some cases, if you ask three different subcontractors what is available in a particular jurisdiction, you’ll get three different answers. And sometimes more than one answer is correct! For example, a local runner may tell you that a corporate record is not available – and for him, that may be true. However, a local lawyer may give you a different answer, because his law license could give him access to those same records. But two lawyers might also give you different answers if, for example, one of the lawyers is a foreign national and the jurisdiction restricts access to certain information to its citizens.
And the answer often changes over time. The laws and regulations governing public records are not static; at any moment, the rules are probably changing somewhere – sometimes making it easier to access records, and sometimes making it harder. In general, the global trend is toward greater transparency. Spurred by the work of the 39-country Financial Action Task Force (FATF), many jurisdictions are improving access to corporate records. As Henry Williams, Head of Investigations of Themis, mentions in our recent GTI interview, the UAE has simplified and consolidated its corporate records system in an effort to be taken off the FATF’s ‘grey list’ of countries with weak corporate transparency regimes.
But access can go in the other direction too, take Hong Kong as a recent example. It has become harder to access corporate information in the territory; new rules being phased in through 2023 will make it more difficult to obtain information about company directors and other relevant individuals from the Hong Kong Companies Registry. And as its invasion of Ukraine deepens Russia’s political and economic isolation, President Putin has spoken about making Russian corporate records more difficult to access.
Then there are the questions of process and timing. How do you access corporate or legal records in a particular jurisdiction? What information must you provide in order to identify the correct entry in a registry? And what if a subcontractor claims they can obtain information that the due diligence analyst presumed was unavailable – are they very clever or are they breaking the law? Or if a subcontractor offers to get records in two days that normally take ten – again, clever or illegal? Or if a record retrieval is taking longer than expected, is that just the process or is the subcontractor making excuses?
To properly scope a due diligence proposal and get the timing and pricing correct, the analyst needs reliable answers to key questions – what information is available, what is the process for obtaining it, and how long will it take? The GTI due diligence platform dramatically simplifies the challenge of determining what information can be found. Our clients can quickly tap the network’s collective understanding of what information is available and how to retrieve it.
And after the due diligence analyst has determined what information is available and found subcontractors to gather that information, she will face a slew of administrative challenges. In our next blog post we address the key question: How do I contract and manage the local subcontractors?
Read the next blog in the series.