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The Due Diligence Team, part 1: Are you in or are you out?

You either develop a passion for due diligence or quit and look for another career, our analysts say. What has mаde them embrace it? The race against time? The gut feeling that doesn’t let you give up? The challenge to get the gist of legal documents like a lawyer, the intricacies of stock transactions like a broker or the conundrums of financial statements like an accountant?

All these and more.

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“We work for the good guys.” That’s how the analysts explain the appeal of the job and their dedication. “We help companies weigh the risks of future business alliances,” lead analyst Boris Vasilev clarifies it. When a company is approached by a new supplier, considers buying a peer or entering a consortium, it must make sure its partners are not involved in corruption schemes, money laundering or other fraudulent activities, he adds. See Georgi Branekov’s post Due Diligence helps tell the bad guys from the good guys.

A disastrous relationship may end up with a court indictment of the overly trustful for being part of those crimes. In some countries, e.g. the USA, such verification is mandatory. “Nobody is obliged to comply with a due diligence report, yet it’s crucial for making an informed decision,” Boris notes. The reports provide information on the company’s owners, their political relations, government contracts, litigation history and adverse media reports of shady affairs, suspicious deals, violations, etc.

Often, the reports could be quite long. “Fat dossiers” lead analyst Georgi Branekov calls them and gives examples.

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It took him half a day to put down the whole list of facts. “That’s nothing compared to the list an analyst had to compile on a Russian behemoth,” Branekov adds, “It took him two days and the guy works like a robot. Things got even more complicated because while he was writing the report there were new developments – sanctions by the European Commission, legal action in Hungary, etc.”

Occasionally, the investigation can return a citizen of unsuspected virtue. Senior analyst Irina Zhecheva had to check out the owner of an Arab company – a 70-plus businessman, living in Peru. It turned out that he was the man who helped Nazi hunters get their hands on a wanted war criminal, Klaus Barbie, called the Butcher of Lyon. It happened some 30 years ago.

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The digital sleuths

How do our detectives gather information about company’s dealings? Skulking in corporate headquarters to take snapshot of hidden documents, installing spyware or hacking corporate networks? Those are images from spy movies. All they do is sit quietly and go through loads of documents and media reports on the web – sanction lists, watch lists, PEPs (publicly exposed persons, i.e. those related to government officials), court records, industry and antitrust regulator’s databases, corporate websites, news stories, features. Their main tools are knowledge of the local languages and culture, analytical skills, automated searches and the gut feeling to guide them in the data maze.

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The most reliable sources are the government websites but big juicy stories of money laundering, bribery, fraud, insider trading, etc. can mostly be found in the media, Georgi explains. Blogs and gossip sites can put you on the trail but you need to verify the rumours, the analysts point out.

The access to information depends on the culture of the country, says lead analyst Ilina Tsoneva. In Japan, respect for privacy restricts searches in public databases for civil and bankruptcy proceedings, she explains. Fear of lawsuits and retribution has a stifling effect on media coverage. She has noticed that articles on sensitive topics disappear days after being published.

Research on Africa-based companies can be a real brain-teaser. Public records are not always available, the media avoid publishing information that may blemish the reputation of companies, things are not called by their real names, you must read between the lines, says lead analyst Velimir Dimitrov. His focus, however, is the Balkans because of the languages he speaks – Romanian and Albanian. The most relevant information is published in the local media, he adds.

The guys  will tell us more about their jobs and how they get on as a team in our next post.