Due Diligence in China

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Due Diligence in China

For many years FE&E, Inc had an office in China.  We got to see the rise of the entrepreneurial China. We also got to see the future currents and I am sorry to say – we have been more or less correct.  Fraud and corruption have taken a terrible toll.

1.) Chinese are not consumers of due diligence but rather see it as a tool to get the edge in negotiations or understand more about a company, a company they may emulate.  Thus, due diligence in China was a cover for economic espionage and competitive intelligence.

2.) Foreign business leaders were too arrogant in their knowledge of the Chinese markets, manipulation or manner of doing business.  I cannot tell you how many times we were asked to help by a company’s Board of Directors, only to be later shooed off by management.  Management always seemed to be certain that their men were the right men and that there men had connections all the way to the famous family and or even politburo members.  After a few dinners and way too many Chinese drinks, the managers were stripped of their ideas, time, and energy, only to be put off by the Chinese “slow- slow- slow- fast- fast” method of doing business.  Often these smart managers were ambushed the day before they left with agreements and contracts and deadlines wholly made up in China that left the western business men unprepared.

One fellow who looked very formal showed up at a number of different restaurants such as the Red Capital Club, rumored to be the location of Chainman paramour relationship and the amazing Jin Ding Xuan. Wild stories would be generated on the legacy of this party member who has taken time from his busy schedule to meet the group of business men.  He was a shill. We got to know him; he was a fine actor and was well paid as a shill to encourage the western business men to open their treasury and their know-how.

3.) While we were permitted to “do what the mother company did back home” – we were very aware that there were no private investigators in China and there are still none today.  The idea of investigation was and is the preview of the state. The recent conviction of an UK investigator on espionage charges reinforces this point.

4.) Corruption and Graft were bad in our day and getting worse. It got so that we could not do our business on a wink and a nod, but only by large red envelops.

5.) The wholesale unapologetic defrocking of western businesses was so bad; it became less of an art form but a commodity of stock and trade practices.

6.) Western stock promoters landed and they began defrauding Chinese business men in return. It became such an orgy of fraud the only remaining targets were the straight and honest and we figured it was time to leave.

So today, there are new due diligence processes and we have been working through some excellent “researchers”. I am glad to say the businessmen now do understand that – forced by AML, SDN, FATCA, OFAC and FCPA  – that some modicum of due diligence must be done.  Even if done by a wink and by people who understand what they are doing and how to navigate the prickliness of the jurisdiction.

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