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China Corporate Sleuths Go From Hunter To Hunted?

posted 1 Aug 2013, 02:59 by Mpelembe Admin   [ updated 1 Aug 2013, 02:59 ]

 

Reuters Business  Report - Behind the headlines on UK drug firm GlaxoSmithKline's China bribery scandal, growing concerns of what might be a wider probe by Chinese authorities into the practices of corporate investigators.

The British founder of investigator ChinaWhys - which counted GSK among its clients - was detained earlier this month, though it's not clear why at this stage.

Corporate investigators are in high demand in China by multinationals and others examining compliance within their own operations, investigating fraud claims, and sussing out how partners or competitors operate.

The industry spans everything from global accounting giants to independent firms - not all of whom operate by the book.

So are authorities becoming less tolerant of some industry practices?

That's what I asked Velisarios Kattoulas, CEO of due diligence firm The Poseidon Group.

CHIEF EXECUTIVE, THE POSEIDON GROUP,VELISARIOS KATTOULAS

"I mean for a long time there have been a lot of people in the due diligence space who have been flying very close to the sun. Chinese law is very clear about privacy and about interaction between the private sector and government agencies, and there's been a number of providers in the due diligence space who have been flouting Chinese law fairly flagrantly over an extended period."

REUTERS REPORTER, JON GORDON, 

"So is China sending a message then to the due diligence industry?"

CHIEF EXECUTIVE, THE POSEIDON GROUP,VELISARIOS KATTOULAS,

"I don't know that it's sending a message so much, but it's starting to enforce laws that for a long time have been widely ignored by some sub-sectors of the due diligence industry."

REUTERS REPORTER, JON GORDON,

"As a DD firm then, how do you select clients, some of whom may have expectations you can't legally meet?"

CHIEF EXECUTIVE, THE POSEIDON GROUP,VELISARIOS KATTOULAS

"Well we've always stayed very well within the boundaries of Chinese law. So if we ever have a client, new or existing, that comes to us and asks us to take on a project that may involve coming very close to the dividing line between what is legal and illegal in China, we'll always walk away from that project."

REUTERS REPORTER, JON GORDON,

"So from the perspective of a multi-national firm then, how do you select a DD firm within China?"

CHIEF EXECUTIVE, THE POSEIDON GROUP,VELISARIOS KATTOULAS,

"I think that before you hire a due diligence firm you need to do a lot of due diligence. And you really need to speak to a lot of their existing clients to figure out which side of the line they fall. Because on the surface, most due diligence firms look alike, and the only way you can really get a sense of whether you're engaging somebody who is going to operate well within the boundaries of Chinese law or flout Chinese law is really to speak to their clients."

REUTERS REPORTER, JON GORDON,

"So for investigative firms who've maybe made some choices in that gray area, can they simply change their working methods or will that history come back to haunt them later?"

CHIEF EXECUTIVE, THE POSEIDON GROUP,VELISARIOS KATTOULAS

"Well I think if you have that history you're always going to be vulnerable. The statute of limitations is not twenty-four hours, so Chinese authorities can always come back and pick you up on things you were doing three years earlier. So I think that's a huge problem for a number of firms."

 REUTERS REPORTER, JON GORDON,

"And I imagine that's also got to be an issue for multinationals looking at fraud within their own company."

 CHIEF EXECUTIVE, THE POSEIDON GROUP,VELISARIOS KATTOULAS

"I think that's been an issue for a while now. FCPA violations are a constant concern for multi-nationals. We work with a lot of firms that consider this almost above all else when they're looking to do a large transaction. And I think the events of the past few months have only really underlined how important it is to be on top of these things."



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