Country briefing exerts and analysis from KCS Group
The ending of sanctions in Iran heralded a deluge of inward investment starting with the oil giant Total, and French auto maker Peugeot. But there is a real and growing danger that companies going to Iran, and their legal advisers, may lack the extensive skills and on-the-ground network to carry out the requisite due diligence.
Some companies have already experienced the dark side of the country. A well-known firm visited Iran six months ago. After only a three day visit, and having not conducted the necessary due diligence, entered into a premature business arrangement that cost them two million dollars.
A rising level of inward investment
The rising level of inward investment into Iran, now and in the future, means more companies will be racing to compete for lucrative contracts. In such an environment, many may be tempted to cut corners by carrying out insufficient due diligence. In less volatile and high-risk markets, firms are often unsure as to which advisers to approach in order to carry out the necessary checks on new business partners.
Since the lifting of sanctions against Iran, the West has turned its eyes towards the massive opportunity it offers those companies courageous and far-seeing enough to trail blaze one of the region’s fastest-emerging economies. Iran has leading manufacturing industries in car making and transportation, construction materials, home appliances, food and agricultural goods, armaments, pharmaceuticals, information technology, power, and petrochemicals. Iran has also developed the biotechnology, nanotechnology, and pharmaceutical industries.
Iran – the Dark Side
But the Dark Side of the picture is Iran’s political system. Despite Ahmadinejad being replaced by the more moderate Rouhani, corruption and economic mismanagement persist. Aside from political considerations, the country’s geography, history, and revolutionary political climate give Iran a high risk factor.
The company, which has already lost two million dollars, was fortunate not pay a far higher price. Its basic due diligence had been merely to check the companies and ensure the individuals they were dealing with were not on an FBI wanted list. This cursory form of due diligence will not even effectively protect travelling business executives from the risk of kidnapping, an ever-present danger in volatile Middle Eastern countries, such as Iran.
Companies going into a challenging market need to be wary of individuals they may be asked to trust. Even in a relatively closed country, there are many individuals likely to have reasons to wish to hide their past and present connections from Westerners with whom they might wish to do business. Simply checking FBI or Interpol wanted lists is not likely to identify a skilled fraudster, or determined criminal or terrorist.
The only effective way for companies going into Iran to protect their business interests and the lives of their travelling executives is to carry out thorough due diligence comprising a high level of background research and marshalling on-the-ground embedded sources capable of carrying out discreet and legal local investigations.
Too many companies still have a naive faith in their own abilities to carry out basic due diligence simply by using a public search engine, such as Google. But most of the information on the internet is well below Google’s reach. A crooked individual has little difficulty in hiding their past or even creating a new identity on openly searched websites, such as LinkedIn. They can manipulate social media to create a new and apparently credible, but wholly fictitious identity. However, the Dark Web, the unseen part of the Internet accessible only via encryption which is favoured by criminals and terrorists, often tells a very different story. Fraudsters are highly active on Dark Web forums.
But online research, no matter how professionally executed, will not always tell the whole story in a society which has been closed to the outside world in many ways since the Revolution and deposition of the Shah in 1979. In order to carry out on-the-ground local research, it is necessary to have a team of operatives already embedded in the country.
Not only would carrying out sufficient online and on-the-ground due diligence be beyond the resources of most organizations and their advisers, but assembling a team of UK-based security contractors and local expertise would take time. And time can be a very expensive commodity for firms engaged in a contracts race in an emerging market, such as Iran. Close advisers, such as legal firms, may also lack the necessary skills and infrastructure to carry out crucial due diligence on future business partners in Iran.
For this reason, the KCS Group has developed a process known as Discreet Non-Conventional Due Diligence (DNCDD). This dovetails a team of internationally-based researchers (of which the KCS Group has roughly 7,000) checking open source and deep-background material research with embedded sources inside Iran.
Source: KCS Group
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