International Law

China Due Diligence. It Is Different.

By Dan

Danwei is just out with a fascinating post by Jeremy Goldkorn, entitled, "Business Travel magazine cheats on audit." The post is on a letter sent out by BPA, "the global organization that audits the circulation of print publications." 

The BPA letter discusses how "Business Travel magazine (????) has been kicked off BPA's list of audited publications" for the following: 

While conducting an on-site print run of the April 2010 issue, BPA audit staff was presented with taped boxes allegedly filled with over 210,000 printed copies of BUSINESS TRAVEL, which upon further inspection, were empty. BPA Worldwide confirmed that 13,360 copies were printed. The average print claim for the twelve month period ending December 31, 2009 was 210,347. The publisher refused access to complete the twelve month ended December 2009 audit.

Danwei describes "[t]his type of trickery" as "all too common in China's media business." I am no expert in China's media business (Jeremy Goldkorn is) but my firm has come across some similar doozies while performing due diligence for our clients, including the following:

1.  Our client was looking to purchase three factories from a Chinese company but in the end, we concluded that the Chinese company really only owned one factory.

2.  Our client was looking to lease a large amount of warehouse space from a company that did not own it.

3.  Our client was looking to buy a Chinese company but finally decided not to move forwardafter being unsatisfied that the fourth (yes you read that right) set of books had no more connection with reality than the first three versions we were provided.

It goes on and on. I am not saying China is the only place where this sort of thing happens as it most certainly is not. But I am saying that anyone who just takes things at face value in China (or anywhere else for that matter) is greatly increasing the odds of finding themselves on the short end of the pile (pun intended).   

Trust yet verify.   

Full post as published by China Law Blog on June 14, 2010 (boomark / email).