Over 20% undeterred by bribery, corruption or money-laundering; over 25% undaunted by criminal connections

Deloitte, the business advisory firm, has announced today the findings of a study into the pre-investment background checks (also known as integrity due diligence) conducted by foreign direct investors on acquisition targets in emerging markets.  Whilst the study has shown an increase, since 1999, in the number of investors now conducting integrity due diligence, it has also shown that the depth of this diligence can vary dramatically, as can the response to any risks identified.

Emma Codd, forensic partner at Deloitte, commented: “There are significant gains to be made from investing in emerging markets.  This is reflected by a majority of 69% of the companies surveyed reporting that most of their investments met or are exceeding expectations.”

She adds: “However, in the rush to tap into the growth opportunities available in emerging markets, some investors are showing a willingness to ignore serious risks relating to a target company that – had they been related to a transaction in their domestic markets – would undoubtedly have killed a deal.  Such risks include a dependence of the target company on political connections or bribes (with 21% failing to see this as a deal killer), an inappropriate use of political connections by the target (54%), and its involvement in money laundering (22%).  Given the current climate of anti-corruption and proceeds of crime legislation, companies that ignore these issues are not only exposing themselves to financial and reputational damage but also to criminal and regulatory sanctions both in their home jurisdictions and – in some cases - others, such as the United States.” 
Other key findings

• 75% said they would not invest in a company founded on criminal funds, yet only 51% actually make enquiries into the source of their partner’s start-up capital;
• 86% of businesses said that if a partner had links to organised crime this would be an instant deal killer, yet 29% fail to conduct enquiries into this issue.

Emma Codd went on to say: “Despite a willingness by companies to conduct some level of integrity due diligence, there is also a disparity between what investors consider deal breakers, such as links to crime, and the due diligence they actually conduct to check these factors.  While there is no doubt that emerging markets present a great investment opportunity for many of today’s companies, they need to ensure that they have identified and addressed the associated risks before taking the plunge.”

Ends

Notes to editors

About the research

Deloitte interviewed finance directors and senior executives from 100 of Europe's top infrastructure companies to find out their views and knowledge of the inherent risks of investing in emerging markets (Eastern Europe, Asia, South America, Africa), and to see how their views had changed since the two previous pieces of research (published in 1999 and 2002). The full report is available on the Deloitte website at www.deloitte.co.uk/forensic.   

About Deloitte

In this press release references to Deloitte are references to Deloitte & Touche LLP which is among the country’s leading professional services firms, providing audit, tax, consulting and corporate finance services. Deloitte & Touche LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu (‘DTT’), a Swiss Verein whose member firms are separate and independent legal entities.  Neither DTT nor any of its member firms has any liability for each other’s omissions.  Services are provided by member firms or their subsidiaries and not by DTT.  Deloitte & Touche LLP is authorised and regulated by the Financial Services Authority.  The information contained in this press release is correct at the time of going to press.  For further information, visit our website at www.deloitte.co.uk

Deloitte & Touche LLP is authorised and regulated by the Financial Services Authority.

The information contained in this press release is correct at the time of going to press.