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Giving China Due Diligence Its Due.

By Dan Harris and Steve Dickinson

Every so often I get an absolutely terrific newsletter from the The Mintz Group, which bills itself as follows:

The Mintz Group is an investigative services firm that gathers hidden business facts all over the world for corporations, law firms, financial institutions and non-profits. We connect the dots by finding the critical facts our clients need before relationships. Before relationships, including business deals and executive hires, we conduct due diligence investigations into the backgrounds and reputations of companies and their executives. During disputes we find admissible evidence that law firms and in-house counsel need to prevail, whether in court or at the negotiating table. After frauds, we connect the dots by finding out what happened, how it happened and who did it.

I am not sure how I got on their mailing list, but unlike virtually every newsletter I get, I have not canceled this one because it is just too good. This issue is no exception, as it contains an excellent article, entitled, ?Beyond Madoff: Eight Lessons from Recent Due-Diligence Background-Checking Gone Wrong,? setting forth the following eight (how luck!?) due diligence "lessons," each of which I explain in relation to China. 1. Before giving someone your money, you need to dig into his background even if he: (a) is a member of your country club; (b) has a friend on the police force; or (c) was profiled in a glossy magazine. For China, I would change (a) to "the Communist Part" and I would change (b) to friend of the mayor and then I would state that these things not only do not militate against the need to conduct your due diligence, they increase that need. 2. The further away from home you travel, the deeper you should investigate the prospective relationships you find there. China is very far away and that should definitely be taken into consideration. 3. Relying on only checking references can give you false comfort about the person. True everywhere, including China. 4. If you fail to check for fraud convictions and fake names in a partner?s past, you might be in for wrong-doing in the future ? leopards generally don?t change their spots. Leopards don't change their spots in China either. 5. Some raves offered by prior employers continue old entanglements. Past employers often do not know of their ex-employees history before joining the company or they pass on a good review just to decrease the likelihood of their ex-employee messing with them. 6. Don?t be bashful about doing a due diligence check of a prospective hire or business partner; be suspicious if he or she seems offended that you?re doing one. Completely true. We find that the honest and legitimate businesses expect caution on our part and respond to our reasonable requests for more information. The disreputable claim the documents do not exist or that we do not know what we are talking about or that this just is not how "it" is done in China. 7. Fake due diligence can be worse than no due diligence at all. This is doubly true for China, where fake documents are so often employed. 8. Don?t be naïve ? many people with things to cover up in their pasts lie when asked about themselves. Completely true. For more on the need to conduct due diligence on your China partners, check out the following: -- Let Me Tell You About China Due Diligence -- Korea, Fake Degrees, Confucius, Due Diligence, And China Too -- Beware The Potemkin Chinese Company -- Floating Houses, Conflicting Laws, And Really Nice Governmental Officials. China Law Practice Writ Large.

Full post as published by China Law Blog on February 03, 2010 (boomark / email).