Due Diligence in China: The Best Way to Do Business and Avoid Fraud

If you have a business in or are planning to open a company in China, the success it can achieve will largely depend on the way transactions and partnerships are executed. Suppose you make a mistake and enter into a contract with, say, a supplier with a criminal background. The impact might include damage to your brand and loss of a huge chunk of the market. So, how can you avoid the challenge? The answer is working with experts to carry out due diligence services in China.

In this post, we take a closer look at due diligence to demonstrate some of the best strategies for your business. 

Due Diligence in China: Follow the Best Practices in HR Recruitment

Internal fraud, incompetence, and staff-related risks can be avoided by carrying out comprehensive background checks before onboarding. As an employer, you need to be thorough by reviewing clients’ details to identify fictitious credentials, past criminal record, and poor performance with their previous employers. 

As a foreigner, verifying all details, including past criminal record, might be challenging. If you are bringing on board expatriates from another country, carrying out due diligence might be even more challenging. This is why you should work with the best firms offering due diligence services in China because they are able to follow back and get all the information you need. 

Even after identifying the preferred staff, the contract should emphasize the recommended code of ethics. 

Vet All Third-Part Vendors 

The vendors you work with are crucial in taking your brand to the people. If you have a dishonest vendor, perhaps fond of taking advantage of clients, there is a risk of sending the wrong message to the market. For example, it is not uncommon to get reports of foreign enterprises getting deceived by local Chinese vendors about product non-deliveries and unsatisfactory quality. Internet fraudsters can also disguise themselves as suppliers. So, how do you reduce these risks? 

Before you can agree to work with a vendor, it is prudent to investigate by following back, including verifying its financial performance. Check with the State Administration for Industry and Commerce (AIC) for more records of the vendor. Past customers can also help to provide more insights into the nature of the selected vendors. 

Adopt Know-Your-Customer Policies 

As a limited liability company, you are responsible for all the decisions and partnerships signed with different parties. Some home countries are even passing laws that could penalize your firm for working with corrupt businesses or persons. In the United States, the Department of Justice is enforcing the Foreign Corrupt Practices Act (FCPA) to stem corrupt practices. 

By implementing robust KYC policies, you can understand all your subjects and partners. If you fail to, there is a risk of getting into legal and financial problems. For example, have the partners, potential clients, vendors, and other parties of interest been avoiding paying taxes? Have they been associated with banned acts, such as funding terrorism, human trafficking, and child labor? If yes, you must avoid them at all costs to protect your brand’s image!

As you can see, due diligence is so important when opening a company or running it in China. However, we must say that carrying out due diligence is never easy. Often, vendors and other businesses try hiding their operations, and simply looking at the papers they present to you might not be enough. To correctly gather all relevant info about the targeted subjects, the best route is working with professionals. They have all the skills and tools to help you pull out information even in foreign jurisdictions. When you select a good firm, such as Fiducia, for due diligence services in China, their experts can also help with other executive functions, including accounting, payroll, and filing tax returns. 

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