Look beore you leap
Managing risk in global investments
As North American companies continue to explore growthopportunities abroad, most notably in emerging markets,we are observing that compliance and integrity risksappear to be rising sharply, a perception supported by oursurvey. Whether this oreign activity involves acquisitions,investments, or other business relationships, such as joint ventures, its deployment in regions oten previouslyunknown has raised the stakes or corporate strategistsand compliance ocers.While most executives are amiliar with the categories ocompliance risk — integrity and reputation, corruption,violation o economic and trade sanctions, and moneylaundering — expansion into the less developed regions oAsia, Central/Eastern Europe, and others is heightening thepotential or those risks to become reality. More than ever,“look beore you leap” should be at the top o the agendaor corporate acquirers.To gain greater insight into this issue o growing concern,Deloitte and Forbes Insights conducted the 4th annual
Look Before You Leap
survey. Participants included morethan 500 business proessionals at companies in the UnitedStates, Canada, and Mexico with a ocus on surveyingcompanies in the nancial services industry. Participantsrepresented a wide range o industries, with 39% o therespondents in the nancial services industry, includingboth nancial buyers, such as private equity rms andhedge unds, and strategic buyers.In addition, several one-on-one interviews were carried outwith senior executives responsible or corporate planningor compliance in order to explore particular concerns ingreater detail.
As used in this document, “Deloitte” means Deloitte Financial Advisory Services LLP, a subsidiary o Deloitte LLP. Please see www.deloitte.com/us/ about or a detailed description o the legal structure o Deloitte LLP and its subsidiaries.
Some o the key research ndings include:Almost two-thirds (63%) o total survey respondents
identied Foreign Corrupt Practices Act (FCPA) andanti-corruption issues that led to an aborted deal ora renegotiation over the past three years. Lack otransparency or unusual payment structures in contractswas cited by one in ve and 18% pointed to the useo agents, consultants, distributors, or third parties toobtain or acilitate business.The level o concern over the potential or compliance
and integrity-related risks has increased substantiallyover this period, especially in the areas o integrity andreputation. Eighty-ve percent o respondents said theirconcerns had risen signicantly or somewhat.A clear majority (60%) o respondents said that they
have either pulled out o a transaction or adjusted dealpricing to refect compliance and integrity-related issues.A similar proportion required a target or partner toresolve and/or disclose a compliance issue to regulatorsprior to closing.China is highest on the list o countries or regions
ranked according to concerns about the potential orcompliance and integrity-related issues when doingbusiness. More than 80% o respondents said theywere signicantly or somewhat concerned about China.Mexico and Central and South America ranked secondand Southeast Asia (Vietnam, Indonesia, and thePhilippines) was third.Entities rom Mexico appear to be very nely attuned
to compliance and integrity due diligence issues, andhighly condent in their ability to meet the challenges.More than 90% o respondents rom Mexico said theyidentied issues in the diligence process in each o theour risk areas mentioned above.