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Levels of Due Diligence

Due diligence is generally recognized in three levels: Level I, Level II and Level III. Each level is appropriate for a different level of corruption risk. The key is to develop a mechanism to determine the appropriate level of due diligence and then implement that going forward. Identifying key risk areas is essential to risk mitigation and the protection of your company’s reputation. Corporate and institutional investors need to know who they will be doing business with especially given heightening regulatory compliance actions by the US and other government agencies, and increasing geopolitical risk concerns.

The 2023 Evaluation of Corporate Compliance Programs (ECCP) stated, “A well-designed compliance program should apply risk-based due diligence to its third-party relationships. Although the need for, and degree of, appropriate due diligence may vary based on the size and nature of the company, transaction, and third party, prosecutors should assess the extent to which the company has an understanding of the qualifications and associations of third-party partners, including the agents, consultants, and distributors that are commonly used to conceal misconduct, such as the payment of bribes to foreign officials in international business transactions.”

The question becomes how you use the information you obtained in the business justification and the questionnaire to determine an appropriate level of due diligence for the next step in the five-step process of third-party management. A three-step approach of varying levels of due diligence is the appropriate analysis to take going forward.

A three-step approach was discussed in Opinion Release 10-02, in which the DOJ discussed the due diligence that the requesting entity performed:

First, it [the requestor] conducted an initial screening of six potential grant recipients by obtaining publicly available information and information from third-party sources … Second, the Eurasian Subsidiary undertook further due diligence on the remaining three potential grant recipients. This due diligence was designed to learn about each organization’s ownership, management structure and operations; it involved requesting and reviewing key operating and assessment documents for each organization, as well as conducting interviews with representatives of each MFI [microfinance institution] to ask questions about each organization’s relationships with the government and to elicit information about potential corruption risk. As a third round of due diligence, the Eurasian Subsidiary undertook targeted due diligence on the remaining potential grant recipient, the Local MFI. This diligence was designed to identify any ties to specific government officials, determine whether the organization had faced any criminal prosecutions or investigations, and assess the organization’s reputation for integrity.

This Opinion Release sets out a clear break that every compliance practitioner should use in considering an appropriate level of due diligence to engage with third-party risk management process or when considering the level of due diligence required on a potential business venture partner.

Further in October 2023 the DOJ announced the new Mergers and Acquisitions Safe Harbor Policy, which encourages companies to self-report corruption and criminal misconduct found during an acquisition. Companies that cooperate with federal regulators, investigate, and then remediate such misconduct may be eligible for criminal declination by the federal government. This process must be initiated within 6 months of the M&A transaction and is heavily dependent on effective due diligence.

Importantly, you can’t disclose what you don’t know. Understanding FCPA risks in foreign jurisdictions requires a deep level of due diligence based on local and regional intelligence.

Given the increasing sanctions and geopolitical risk environment it behooves a company to identify these risk factors. Due diligence investigations also help to identify national security risks ranging from corruption, and sanctions violations to terrorist financing. The stakes are increasingly serious for all companies working internationally and domestically within the US.

Due diligence investigations can reveal reputational risk, litigation issues, fraud and corruption risks, financial sanctions, criminal activity, supply chain risk, regulatory risk and environmental, social & governance (ESG) risks.

A very good description of the three levels of due diligence was presented by Candice Tal, Founder and CEO of Infortal Worldwide, in an article entitled, Deep Level Due Diligence: What You Need to Know.

Level I. First level due diligence typically consists of checking individual names and company names through over 1400 Global Watch lists comprised of AML, anti-bribery, sanctions lists, coupled with other financial corruption and criminal databases. These global lists create a useful first-level screening tool to detect potential red flags for corrupt activities. It is also a very inexpensive first step in compliance from an investigative viewpoint. Tal believes that this basic Level I due diligence is extremely important for companies to complement their compliance policies and procedures—demonstrating a broad intent to actively comply with international regulatory requirements.

Level I should also consider beneficial ownership records when they are available, and company tax information to assess whether the third party is financially sound and in compliance with tax payments as required within its primary country of business, plus a check of perceived business risks in that country. Additionally, the third party’s website should also be reviewed; it is unusual for a company not to have a website and this can be a preliminary flag that there are issues. Tal recommends verifying that the company address also exists; a non-verifiable address should be considered a potential red flag that would indicate the need for a deeper-level due diligence investigation.

Level I will reveal some of the key information needed to make preliminary risk exposure ranking decisions, especially for larger corporations who may have several hundred thousand vendors in their supply chains. However, Level I is very basic in scope and will not identify the majority of corruption risks; it should therefore only be considered a first step.

Level II. Level II due diligence encompasses a broader public records search and supplementing Global Watch lists with a negative keyword screening of international media, typically major newspapers and periodicals from all countries, plus detailed internet searches. Negative keywords are not the same as deep media/ OSINT searches as these focus on a smaller selection of keywords only. Such inquiries will often reveal other forms of corruption-related information and may expose undisclosed or hidden information about the company, the third-party’s key executives and associated parties.

Level II should also include everything found in Level I searches plus in-country database searches. Other types of information you should consider obtaining are country of domicile and international government records, use of in-country sources to provide assessments, a check for international derogatory electronic and physical media searches, which should be performed in both English and foreign-languages, in its country of domicile. Further, if you are in a specific industry, use technical specialists and obtain information from sector specific sources.

Level III. This level is a deep dive due diligence with a far more thorough investigation than the Level II scope, enabling a comprehensive assessment of corruption and business risks.

I agree with Tal that a Level III due diligence investigation is designed to supply your company “with a comprehensive analysis of all available public records data supplemented with detailed field intelligence plus a deep dive investigation of online records to identify known and more importantly unknown conditions. It will also require an in-country “boots-on-the-ground” investigation in the country involved. Seasoned investigators who know the local language and are familiar with local politics bring an extra layer of depth assessment to an in-country investigation.”    Further, Tal notes that:

Direction of the work and analyzing the resulting data is often critical to a successful outcome; and key to understanding the results both from a technical perspective and understanding what the results mean in plain English. Investigative reports should include actionable recommendations based on clearly defined assumptions or preferably well-developed factual data points. These are security-based recommendations designed to highlight issues and themes of information found across different investigative avenues. Without this understanding companies may miss critical information necessary to make informed risk and compliance decisions.

Significantly, thorough Level III due diligence can provide an additional level of fiduciary duty of care for the company’s board.

Level III should include deep web, accessible dark web, and historical Internet searches, also known as Open-Source Intelligence Investigations (OSINT). Although AI can be used for some of this work, it should be noted that AI without investigative analysis will yield less adverse information. AI can ignore  critical information that it cannot identify as missing, also there may be indicators inferring an outcome which is likely to be missed by AI currently. Investigative analysis looks at hidden and undisclosed information and searches for information that should have been found but was not. It is an integrated approach incorporating “boots on the ground”, intelligence gathering, and due diligence investigations. Relying on basic Google searches is a certain mistake as hidden and undisclosed information are unlikely to be discovered.

But more than simply an investigation of the company, including a site visit and coupled with onsite interviews, Tal says that some other things you should investigate include:

An in-depth background check of key executives or principal players. These are not routine employment-type background checks, which are simply designed to confirm existing information; but rather executive due diligence checks designed to investigate hidden, secret or undisclosed information about that individual.

Tal believes that an in-depth background check should also look for such “Reputational information, undisclosed involvement in other businesses, direct or indirect involvement in other lawsuits, history of litigious and other lifestyle behaviors which can adversely affect your business, and public perceptions of impropriety, should they be disclosed publicly.”

Further, you may need to engage a foreign law firm to investigate the third-party in its home country to determine their compliance with its home country’s laws, licensing requirements and regulations. Lastly, and perhaps most importantly, you should use a Level III to look the proposed third-party in the eye and get a firm idea of the third party’s cooperation and attitude towards compliance—as one of the most important inquiries is based on the response and cooperation of the third-party. More than simply trying to determine if the third party objected to any portion of the due diligence process or objected to the scope, coverage or purpose of the FCPA, you can use a Level III due diligence investigation to determine if the third party is willing to stand up with you under the FCPA and are you willing to partner with the third party?

There are many different approaches to the specifics of due diligence. By laying out some of the approaches, you can craft the relevant portions into your program. The Level I, II and III trichotomy appears to have the greatest favor and one that you should be able to implement in a straightforward manner. But the key is that you must assess your company’s risk and then manage that risk. If you need to perform additional due diligence to answer questions or clear red flags you should do so. And do not forget to “Document, Document, and Document” all your due diligence.

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Riskology

Riskology by Infortal Episode 11: The New Normal – Geopolitical Risks Reshaping Global Business

In this inaugural episode of Riskology by Infortal, hosts Chris Mason, Candice Tal and Dr. Ian Oxnevad discuss their approach to the podcast, and share a glimpse into the diverse range of topics they will be delving into. Riskology blends business, geopolitics, and intelligence to demystify the 21st century economic world and explore how geopolitical risk directly impacts your bottom line. 

Infortal Worldwide is a global risk management and investigations firm that specializes in helping businesses navigate complex risk landscapes. The company’s focus extends to various areas, including economics, politics, and geopolitical risk. By delving into these interconnected realms, Infortal Worldwide aims to provide clients with comprehensive insights that empower them to make informed decisions, especially in critical areas such as mergers and acquisitions, private equity investments, and other strategic moves.

 

You’ll hear Candice, Chris and Ian discuss:

  • Infortal Worldwide is a global risk management and investigations firm with a strong 38-year track record. The firm operates in 160 countries around the world, serving a diverse range of industry sectors, with a primary focus on large companies, upper-middle-market entities, and large-cap corporations.
  • In addition to geopolitical risk, Infortal specializes in providing solutions to real-world problems faced by clients. Their expertise encompasses issues such as sanctions risk, potential violations of the Foreign Corrupt Practices Act (FCPA), identifying bad actors, and addressing reputational damage that can expose companies to significant risks.
  • Infortal helps companies mitigate global risk exposures, such as financial losses, reputational damage, and legal liability. They provide a comprehensive risk management solution with tools and services to identify, assess, and manage risks.
  • The risk environment encompasses micro risks at the individual and business level, as well as macro risks at the country and regional level. The focus is on understanding immediate risk exposure from individuals and businesses, up to broader country-level and regional risks.
  • Infortal recognized the significant challenges that companies face when engaging with international partners, suppliers, and stakeholders. The company aims to address the gap in discussions around geopolitical risk and provide education on the multifaceted challenges that businesses face today.
  • Larger companies often face challenges in disseminating key information about geopolitical risks effectively. Information tends to become siloed within risk teams, making it difficult for decision-makers to access and act upon relevant intelligence. To unlock the power of geopolitical risk analysis, it is necessary to break down information silos and ensure that critical insights reach key decision-makers.
  • Geopolitical risk analysis is more than just identifying potential problems and challenges. When information flows effectively within an organization, companies can use geopolitical risk analysis to uncover opportunities. This proactive approach allows organizations to strategically navigate the business landscape, positioning themselves advantageously against competitors in the event of unforeseen challenges.
  • The current geopolitical risk landscape indicates a change in the dynamics of globalization. While globalization is a real and ongoing phenomenon, the traditional framework and relationships that defined it in the past have been significantly disrupted. Key geopolitical players, such as Russia, China, India, and the European Union, are reshaping the global economic landscape, and this transformation presents both challenges and opportunities.
  • While globalization is currently facing challenges and uncertainties, it is also a critical juncture with many opportunities. Strategic countries such as India and Turkey, as well as those straddling various global dynamics, will play a pivotal role in shaping the future. The US, with its strong fundamentals and economic influence, remains a major player in determining the course of global developments.

 

KEY QUOTES

“The area that we specialize in, in addition to geopolitical risk, is finding solutions to real world problems that our clients face. And that could be anything from sanctions risk, to potential FCPA violations, to finding bad actors [and] con artists, to businesses that are operating with reputational damage and create exposures for the companies that they work with.” – Candice Tal 

 

“And that’s the issue or the challenge of key information getting siloed within organizations. … It’s sometimes hard for all of the right information to come from the risk teams and end up in the right circles within the organization so that the key decision makers can actually act on the information and the intelligence that’s there. In the case of geopolitical risk, what we’re finding is that information is not making its way to the right individuals within the organizations.” – Chris Mason

 

“If you look at the geopolitical risk landscape today, it can be really summed up as: globalization ain’t what it used to be. And what that really means is that if there’s geopolitical stability and stability within major countries, then the global economy is going to work very well. But because of a number of issues that have happened over the past few years, some of it relates to COVID, some of it relates to just the fact that it’s not a unipolar system anymore. But what that means is that this is not the Cold War, this is not the post Cold War era in which we had peace and prosperity and the spreading of liberal democracy. If you sum all that up, we’re actually going in reverse.” – Ian Oxnevad

 

Resources

Infortal Worldwide 

Candice Tal on LinkedIn | Twitter

Ian Oxnevad on LinkedIn

Chris Mason on LinkedIn

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Geopolitical Risks and Business Opportunities: Part 5- Doing Business With and In China

I recently had the opportunity to visit with Dr. Ian Oxnevad, Director of Geopolitical Risk intelligence at Infortal Worldwide. This visit was for a podcast series, sponsored by Infortal Worldwide entitled Global Risk Review. Dr. Oxnevad is a seasoned expert in geopolitical risk intelligence, with a PhD in political science and a master’s degree in National Security Studies. In this concluding blog post we look at risks in doing business in China. In this concluding blog post 5, we consider the risks and opportunities for US companies continued business with and in the country of China.

Oxnevad’s perspective on US companies considering leaving China is rooted in his understanding of the potential challenges they face, including political instability and property confiscation. He strongly advises companies to expedite the process of moving their assets out of China, citing the high risks involved, especially in the event of a war. Oxnevad suggests alternatives such as nearshoring or reshoring to safer locations like the United States, and also highlights India as a potential investment destination due to its large domestic market and lack of political issues with the US.

In recent years, China’s strict COVID-19 response and aggressive foreign policy have created political challenges and global inflation. These factors have prompted US companies to consider moving their operations away from China. Smaller Asia-Pacific countries, caught in the crossfire of geopolitical risks, lack the economic stability and military capacity to handle potential conflicts. As a result, India is emerging as a more stable option due to its democratic governance and institutional safeguards. However, Pakistan, with its history of authoritarian rule, security risks, and close ties with China, presents a unique and complex business landscape.

China’s foreign policy has become increasingly aggressive, despite its internal issues with state-owned enterprise debt and lingering resentment over COVID-19. This aggressive stance has raised concerns among American companies and others, leading them to explore options for decoupling from China. The potential risks of war and the resulting instability have become a significant factor in their decision-making process. Companies are now considering near-shoring, ally-shoring, or reshoring their operations to minimize their exposure to China.

One of the key flashpoints in the region is the tension between China and Taiwan. China’s regular incursions into Taiwanese waterways and airspace have raised the possibility of a conflict erupting overnight, with no advanced warning. The situation is further complicated by China’s tensions with India in the Himalayas. Hand-to-hand battles between Indian troops and the Chinese military have occurred, highlighting the long-standing competition between the two countries. The potential for a massive war involving China, Taiwan, Japan, Australia, India, and the US is a real concern, with nuclear weapons adding to the instability.

Given these risks, US companies are exploring alternatives to China, with India emerging as a potential destination. India offers a more stable investment environment compared to China, with its democratic governance and experience with parliamentary procedures. While India has its own internal issues, such as corruption, it still maintains a commitment to democratic principles and the rule of law. Additionally, India’s large domestic market and its central location make it an attractive option for companies looking to diversify their supply chains.

However, it is important to note that India is not without its risks. The country has shown tendencies towards autocracy and strongman rule, although these tendencies are not as pronounced as in some other countries. India’s federal structure and institutional safeguards provide some protection against the consolidation of power by a strongman leader. While no country is immune to political risks, India’s democratic experience and commitment to democratic principles make it a relatively stable option compared to other countries in the region.

The potential risks in China have also raised the question of whether US companies should consider near-shoring or reshoring their operations back to the United States. The government can play a role in facilitating such efforts through tax incentives, grants, and other types of incentives. However, the decision to reshore or near-shore is not without tradeoffs. Companies must weigh the potential benefits of reduced exposure to geopolitical risks against the costs of relocating their supply chains and the potential impact on their relationships with Chinese partners and customers.

In conclusion, US companies are seriously considering leaving China amid the political challenges and geopolitical risks in the region. The potential for conflict, particularly involving Taiwan, has raised concerns about the stability of supply chains and the safety of investments in China. India is emerging as a more stable alternative, with its democratic governance and institutional safeguards. However, companies must carefully consider the tradeoffs involved in relocating their operations and the potential impact on their business relationships. The decision to leave China is not an easy one, but it is a reflection of the increasing uncertainties and risks in the region.

You can check Dr. Oxnevad in the full five-part Riskology by Infortal podcast series here.

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Geopolitical Risks and Business Opportunities: Part 4 – Factors Impacting European Financial Integration

I recently had the opportunity to visit with Dr. Ian Oxnevad, Director of Geopolitical Risk Intelligence at Infortal Worldwide. This visit was for a podcast series sponsored by Infortal Worldwide entitled Global Risk Review. Dr. Oxnevad is a seasoned expert in geopolitical risk intelligence, with a Ph.D. in political science and a master’s degree in National Security Studies.

Ian Oxnevad is a seasoned expert in geopolitical risks impacting European financial integration and opportunities, with a profound understanding of Europe’s internal and external crises since 2008. We will consider factors affecting European financial integration in Part 4 of this five-part blog post series. Oxnevad’s perspective is that Europe has been grappling with constant internal stressors and external crises, such as banking crises and political upheavals, which pose significant risks to European financial integration. He underscores the need for enhanced risk analysis at the national level and geopolitical risk intelligence to navigate the uncertainties in Europe.

However, Oxnevad also identifies opportunities for US companies, particularly in the energy sector, to export to Europe, especially in the context of a stronger Euro. He further discusses the regulatory risks posed by GDPR and ESG laws in Europe and how US companies must manage these risks. In this blog post, we deeply dive into these complex and evolving geopolitical risks in Europe and their potential impact on financial integration and opportunities.

Europe has been facing many challenges impacting its financial integration and potentially altering the European Union (EU) and the Euro in a recent episode of the Riskology podcast hosted by Tom Fox and featuring Ian Oxnevad, the discussion centered around the geopolitical risks that Europe is currently grappling with and the opportunities that arise amidst these challenges.

One of the key factors affecting European financial integration is the ongoing Russia-Ukraine war. This conflict, coupled with rising energy prices, Middle East instability, and unchecked migration, puts pressure on the region’s financial integration and potentially changes the EU and the Euro as a monetary unit. These external pressures, along with internal populism, ongoing inflation, and high energy costs, are fueling resentment and could significantly impact European integration and its governing laws.

The Russia-Ukraine war has spilled energy inflation, creating monetary instability and supply chain issues. Annual inflation rose by 40% in June 2022 due to the invasion, and it remains high at 16.6% as of February this year. This inflationary pressure affects various aspects of the economy, including consumer spending capacity, production capacity, and manufacturing affordability. Governments have increased spending to offset these costs, further straining the Euro and limiting the ability to navigate these challenges through monetary means.

The pressures Europe faces are not limited to the EU as a whole but extend to the national level. This shift necessitates a greater focus on risk analysis at both levels, as the rules and regulations governing European integration may change suddenly and overnight. The emergence of populism across the EU, as seen in France and the Netherlands, indicates growing animosity towards incumbents and a desire for change. This political upheaval poses risks and uncertainties for businesses operating in Europe, as regulations, taxation, and even the monetary unit itself may be subject to change.

Despite these challenges, there are opportunities for US energy companies to export to Europe. The weakening of the dollar and the strength of the Euro make Europe an attractive export location for US goods and services, including energy. However, regulatory risks and challenges must be carefully considered. Europe’s robust data protection and privacy laws, such as the General Data Protection Regulation (GDPR), and its focus on environmental, social, and governance (ESG) factors present potential risks for US companies. Compliance with these regulations requires careful risk management and due diligence.

ESG initiatives, particularly the push for renewable energy, present countervailing risks. While there is a regulatory push for green energy, the inefficiencies and costs associated with these technologies and the reliance on minerals from regions with questionable labor practices create challenges. Balancing the environmental (E) aspect of ESG with the social (S) and governance (G) aspects requires careful consideration and geopolitical risk intelligence.

The banking sector is also facing turmoil, with institutions like Deutsche Bank and Swiss banks experiencing challenges. While it is unlikely that the German government would allow Deutsche Bank to fail, the stability of these institutions and their role in global monetary and fiscal policy is a concern. The European Central Bank, the Bank of England, and the US Federal Reserve play crucial roles in stabilizing the financial systems, but their ability to navigate these challenges remains to be seen.

In conclusion, the geopolitical risks impacting European financial integration and opportunities are complex and multifaceted. Europe’s response to the Russia-Ukraine war, rising energy prices, Middle East instability, and unchecked migration will shape the future of the EU and the Euro. Balancing the tradeoffs involved in managing these risks, such as the need for defense spending versus protecting consumers, requires careful analysis and risk intelligence. US companies can find opportunities in exporting to Europe, but they must navigate regulatory risks and consider the contradictions within ESG mandates. The banking sector’s stability and global institutions’ role in stabilizing the financial systems are also areas of concern. As Europe faces these challenges, it is crucial to consider the impact on financial integration and opportunities when making decisions.

Please join us tomorrow when we explore geopolitical risks and business opportunities in China and the greater Asia Pacific region.

You can check Dr. Oxnevad in the full five-part Riskology podcast series here.

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Geopolitical Risks and Business Opportunities: Part 3 – Russia and Rebuilding Ukraine

I recently had the opportunity to visit with Dr. Ian Oxnevad, Director of Geopolitical Risk Intelligence at Infortal Worldwide. Global Risk Review, a podcast series that Infortal Worldwide sponsors was the reason for this visit. Dr. Oxnevad is a seasoned expert in geopolitical risk intelligence, with a Ph.D. in political science and a master’s degree in National Security Studies.

Over this five-part blog series, we will look at the risk profile for US Companies doing business in the following geographic regions: the Middle East, Latin America, Russia and Ukraine, Africa, and the Asia Pacific region. Over this five-part blog post series, we will review Dr. Oxnevad’s views in each one of these regions. Part 3 reviews the business opportunities and risks in Russia and the challenges and opportunities in rebuilding Ukraine.

Dr. Oxnevad deeply understands the issues in Russia and Ukraine. His belief that the upcoming rebuilding of Ukraine will spark a surge of interest from significant US corporations, the EU, and China, potentially resulting in increased corruption and geopolitical risks, shapes his perspective on the global implications and geopolitical risks. Oxnevad emphasizes the need for ongoing due diligence and monitoring by Western companies to navigate potential challenges and uncertainties, such as changes in laws and competition from different countries. He also acknowledges the significant risk of corruption in Ukraine, especially during the rebuilding process, and believes it may take time for EU institutions to mitigate this risk.

The war between Russia and Ukraine has had far-reaching consequences, not only for Europe but also for other parts of the world. Indeed, it has changed business across the globe forever.

One of the key factors to consider is the impact on global food supplies. Russia and Ukraine are major food and grain suppliers, and the war and sanctions have disrupted their production. This has put food supplies at risk, increasing food costs and inflationary pressures worldwide. Countries in Africa and the Middle East, in particular, heavily rely on these food supplies, and the uncertainty surrounding Ukraine’s ability to meet these demands raises concerns.

The rebuilding of Ukraine presents significant opportunities for major corporations from the United States, the European Union, China, and other countries. However, it also raises concerns about corruption and geopolitical risks. Ukraine has been traditionally viewed as a high-risk country for corruption, and the war has only exacerbated this issue. The chaos and emergency in the country create a greater incentive for corruption to exist. President Zelensky’s ability to address these concerns remains to be determined, and it is unlikely that corruption will disappear even if the war were to end abruptly.

From a geopolitical standpoint, the war between Russia and Ukraine has become a proxy war between Russia and the West and China and the West. This further complicates the situation and introduces additional risks. The resolution of the war and the lifting of sanctions will depend on various factors, including Russia’s political landscape and the leadership of President Putin. If Putin remains in power, the sanctions will likely stay in place. However, if there is a change in leadership, lifting sanctions could be a possibility, albeit with careful consideration of Russia’s economic and political landscape.

The rush to capitalize on Ukraine’s rebuilding presents both opportunities and risks. Many countries and corporations will be vying for a stake in Ukraine, increasing the incentives for corruption and other geopolitical risks. Competitors will be aware of the presence of different countries, further complicating the situation. It is crucial for American companies and others to carefully assess the risks associated with corruption in Ukraine and conduct thorough due diligence before engaging in business opportunities.

The international community, including the European Union, NATO, and the United Nations, may play a role in assisting Ukraine in its rebuilding efforts. Establishing the rule of law, policies, and procedures will ensure a successful reconstruction. However, the timing of international involvement is crucial. Rebuilding efforts must occur before existing EU institutions move in to address corruption, as this will help mitigate the associated risks.

In conclusion, rebuilding Ukraine has significant global implications and geopolitical risks. The disruption of food supplies, the rush to capitalize on opportunities, and the challenges associated with corruption must be carefully considered. The resolution of the war and the lifting of sanctions depend on various factors, including Russia’s political landscape. International assistance in rebuilding efforts, particularly in establishing the rule of law, will be crucial. However, it is essential to conduct thorough due diligence and assess the risks before engaging in business opportunities in Ukraine.

Please join us tomorrow when we explore geopolitical risks and business opportunities in Europe.

You can check Dr. Oxnevad in the full five-part Riskology podcast series here.

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Blog

Geopolitical Risks and Business Opportunities: Part 2 – Latin America

I recently had the opportunity to visit with Dr. Ian Oxnevad, Director of Geopolitical Risk Intelligence at Infortal Worldwide. Global Risk Review, a podcast series that Infortal Worldwide sponsors was the reason for this visit. Dr. Oxnevad is a seasoned expert in geopolitical risk intelligence, with a Ph.D. in political science and a master’s degree in National Security Studies. Over this five-part blog post series, we will review Dr. Oxnevad’s views in each one of these regions. Part 2 reviews the business opportunities and risks in Latin America.

Dr. Ian Oxnevad is a highly regarded expert in global geopolitical risk, with special knowledge of Latin America. His extensive experience and understanding of the region’s shifting dynamics shape his perspective on Latin America’s geopolitical risks and business opportunities. Oxnevad identifies significant changes and instability in the region, including increased statism, corruption, and authoritarianism, as well as China’s growing influence, particularly in Brazil. He emphasizes the importance of due diligence and geopolitical risk intelligence, often overlooked by CEOs and political figures. He discusses the risks and potential opportunities for US businesses in Mexico, Venezuela, Cuba, Chile, and Ecuador.

Latin America is a region that is experiencing a rise in geopolitical risk and instability. With China increasing its presence in the region and concerns growing over corruption and authoritarianism, it is crucial for companies considering investment in Latin America to prioritize due diligence and geopolitical risk intelligence. Despite these challenges, the region is not on the sidelines of global events and offers potential business opportunities.

One of the popular strategies for US companies is nearshoring in Mexico. However, this approach comes with its own set of risks. Nationalization, political divisions, and crime are some of the factors that companies need to consider when investing in Mexico. It is important to conduct thorough research and analysis to understand the specific risks associated with each location within Latin America.

Dr. Oxnevad emphasized the importance of paying attention to Latin America regarding geopolitical risks and business opportunities. He pointed out that many CEOs and people in the political world view Latin America as being off the sidelines of major events worldwide, but this is far from the truth. Latin America is a dynamic region that requires careful consideration and attention.

Despite its challenges, Cuba can become a financial hub in Latin America. Its strategic location and favorable weather make it an attractive destination for businesses. However, significant reforms, regional ties, and US investment would be necessary to realize this potential. Cuba was historically a financial center in the Americas under Spanish rule. If it were to liberalize and attract investment, it could play a similar role in Latin America as the UAE does in Africa.

Additionally, simply looking at a map of the Caribbean Sea and the Atlantic Ocean reveals that Cuba is the best entry point for the northern Latin American continent from a transportation perspective. Cuba’s potential as a gateway to northeastern Latin America, particularly in shipping and transshipping, makes it an attractive business prospect. Finally, the Obama Administration’s initiative to open Cuba to US commerce, which the Trump Administration scuttled, shows an active consumer base for US goods, products, and services. When President Obama visited Cuba, over 2000 US business executives traveled to meet and assess the business opportunities.

Venezuela, on the other hand, presents a different set of challenges. The Venezuelan regime is hostile towards the US, and China has increased its presence there. This makes a significant opening for US businesses unlikely. Moreover, even if there is an opening, the pervasive corruption problem will make it difficult to do business with Venezuela. The national energy concern, PdVSA, is generally recognized as one of the most corrupt energy-related state-owned enterprises globally. Navigating doing business with PdVSA will be difficult and closely watched by US authorities.

Conversely, despite not being directly connected to the energy industry, Cuba has a better chance of opening up. The existing regime in Cuba relies on Raul Castro for legitimacy, and there is a greater likelihood of liberalization due to political reasons.

When considering business opportunities in Latin America, it is essential to assess the geopolitical risks associated with each country. Chile, for example, is considered safer than Ecuador due to its more pro-business body of law. However, Chile is internally divided, and there are pushes to increase authoritarianism. Ecuador, on the other hand, appears more unstable, with recent electoral violence. Conducting thorough screenings and assessments of each country’s legal framework, corruption levels, labor relations, and criminal risks is crucial for making informed decisions.

In conclusion, Latin America presents both geopolitical risks and business opportunities. Companies must conduct due diligence and gather geopolitical risk intelligence to navigate the challenges and tradeoffs. Latin America should be noticed, as it is a region actively involved in global events. By carefully considering the impact of geopolitical risks and making informed decisions, businesses can tap into the potential that Latin America has to offer.

Please join us tomorrow when we explore Geopolitical Risks and Business Opportunities in Russia and Ukraine.

You can check Dr. Oxnevad in the full five-part Riskology by Infortal podcast series here.

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Geopolitical Risks and Business Opportunities: Part 1- The Middle East 

I recently had the opportunity to visit with Dr. Ian Oxnevad, Director of Geopolitical Risk intelligence at Infortal Worldwide. This visit was for a podcast series, sponsored by Infortal Worldwide entitled Global Risk Review. Dr. Oxnevad is a seasoned expert in geopolitical risk intelligence, with a PhD in political science and a master’s degree in National Security Studies. His expertise, particularly in the Middle East and Africa region, has led him to identify numerous opportunities for US businesses, especially in the high-tech sector and water technology, following the Abraham Accords. Dr. Oxnevad acknowledges the potential risks, such as political tensions, inflationary pressures and threats to the dollar’s dominance. His insights are shaped by his extensive academic background and his role as the Director of Geopolitical Risk Intelligence for Infortal Worldwide.

Over this five-part blog post series we looked at the risk profile for US Companies doing business in the following geographic regions, the Middle East, Latin America, Russia and Ukraine, Africa and the Asia Pacific region. Over this five-part blog post series, we will review Dr. Oxnevad’s views in each one of these regions. We begin in this Part 1 by reviewing the business opportunities and risks in the Middle East.

The Middle East has undergone significant changes in recent years, particularly with the signing of the Abraham Accords in 2020. These accords have opened new opportunities for US businesses in the region, particularly in the United Arab Emirates (UAE) and Israel. However, along with these opportunities come certain risks and challenges that need to be carefully considered.

One of the key areas where US businesses can benefit from the Abraham Accords is in the high-tech sector. Both the UAE and Israel have highly advanced economies and a strong focus on technology. The normalization of relations between these countries has created opportunities for bilateral investments and partnerships. US companies looking to invest in Israel or the Gulf states can now do so with greater ease, as the need to keep economic relations separate has diminished.

Another sector that presents opportunities for US businesses is water technology. The UAE, in particular, heavily invests in Africa, where there is a high demand for water systems. Previously, geopolitical issues may have hindered collaboration between Emirati investors and US companies in providing water technology solutions in Africa. However, with the Abraham Accords, these hurdles have been removed, allowing for greater regional integration and technological cooperation.

While the Abraham Accords have opened up new avenues for US businesses, it is important to consider the potential risks and challenges that come with operating in the Middle East. One such risk is the potential for export sanctions violations, particularly in relation to Iran. US companies operating in Saudi Arabia, for example, need to be aware of the risks associated with conducting business with partners or buyers who may have ties to Iran. Thorough due diligence and risk assessments are crucial in mitigating these risks.

Additionally, the normalization of ties between Saudi Arabia and Iran, facilitated by China’s Belt and Road initiative, has implications for energy costs and potential inflationary pressures. If oil sales start getting denominated in currencies other than the US dollar, it could lead to higher energy costs and inflationary pressures. This could have a significant impact on US businesses operating in the region, as it may affect supply chains and purchasing power.

It is important for US businesses to stay informed about geopolitical developments and the potential impact on business opportunities and risks in the Middle East. Geopolitical risk intelligence and screening of partners and suppliers are essential in navigating the complex landscape of the region.

In conclusion, the Abraham Accords have created new opportunities for US businesses in the Middle East, particularly in the UAE and Israel. The high-tech sector and water technology are key areas where US companies can benefit from increased regional integration. However, it is crucial to consider the risks associated with export sanctions and potential inflationary pressures. Thorough due diligence, risk assessments, and staying informed about geopolitical developments are essential for US businesses looking to capitalize on the opportunities in the Middle East post-Abraham Accords.

I hope you will join us tomorrow when we explore Geopolitical Risks and Business Opportunities in Latin America.

You can check Dr. Oxnevad in the full five-part Riskology by Infortal podcast series here.

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Riskology

Infortal on Risk Intelligence Part 5: Supply Chain Intelligence with Dr. Ian Oxnevad

In the final part of this week’s five-part special, Tom Fox discusses supply chain risks with Dr. Ian Oxnevad. He talks about the supply chain from a geopolitical risk perspective and the various steps companies can take to prepare themselves against those risks.

 

Dr. Ian Oxnevad is a political scientist and economist at Infortal Worldwide, a global risk firm that provides due diligence services to support key investment decision-making. Infortal Worldwide supports a lot of private equity investment, mergers, acquisitions, and any risk scenario a business may face.

  • Supply chain intelligence must first begin with a risk analysis. Companies must determine their exposure to geopolitical risks, such as political unrest, social unrest, or war. 
  • How a company de-risks its supply chain depends on which risk is the largest. “Are you looking at closing the distance and reducing logistical costs between a customer and a company?” Ian asks. Suppose your company is considering alternatives to its current supply chain system or systems outside its country. In that case, it must consider corruption, terrorism, organized crime, and ESG. 
  • Ian goes through some steps Infortal takes when counseling companies through de-risking. He describes what it takes to create a solid supply chain risk response plan. 
  • The intelligence process gives companies legal guidance and any other relevant information they need for making the right decisions while mitigating as much risk as possible.

KEY QUOTE

” Supply chain intelligence is key to understanding and avoiding hidden supply chain risks.”-  Dr. Ian Oxnevad 

Resources: 

Infortal Worldwide | Email | Tel: 1.800.736.4999

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Blog

Infortal Worldwide Geopolitical Risk Intelligence 2023 Outlook: Part 5-Supply Chain Intelligence

I recently had the opportunity to visit with, Chris Mason, VP Global Compliance & Investigations at Infortal Worldwide and Dr. Ian Oxnevad, Director, Geopolitical Risk at Infortal Worldwide for a sponsor podcast on Infortal Worldwide’s Geopolitical Risk Intelligence 2023 Outlook. Over this series we considered business intelligence, ESG intelligence, corruption intelligence, sanctions intelligence and supply chain intelligence. In today’s final post in this five-part blog post series, we are joined by Ian Oxevad, Director of Geopolitical Risk at Infortal Worldwide, to discuss supply chain intelligence and how to navigate geopolitical risks. In this concluding blog post in this five-part series, we consider how to use intelligence to de-risk your supply chain and protect your business from geopolitical risks.

Oxnevad holds a PhD in political science and is an expert in in political science, economics, corporate espionage, economic warfare, money laundering, and terrorist financing to help companies understand the risks of their supply chain and how to de-risk it. He explains that supply chain intelligence is far from a new concept and goes as far back as the spice trade in the 15th century. Ian provides a three-step process to navigating supply chain intelligence and de-risking and provides a wealth of knowledge on the subject.

Here are the steps you need to follow to also get risk mitigation.:

1. Assess what your exposure is to certain geopolitical risks.

2. Utilize intelligence to find alternatives that connect a company to its customers.

3. Screen potential alternatives and warning indicators.

1. Assess what your exposure is to certain geopolitical risks.

The first step in assessing a company’s exposure to certain geopolitical risks is to gather information from the client. This includes their risk exposure, concerns, and goals. A company should then use intelligence sources, such as boots-on-the-ground resources and triangulated analysis, to create an intelligence product that can be used to make informed decisions. Once the risks have been identified, a company can then begin to look for potential alternatives to mitigate them. This could involve relocating suppliers to other regions, increasing efficiency, or increasing redundancy. Companies should also be aware of warning indicators that may indicate a rise in risk, such as political unrest, changes in regime, or an increase in militarism. Finally, the company must make an informed decision on which alternative to pursue. For more information on this topic, readers can visit the website Infortal.

2. Utilize intelligence to find alternatives that connect a company to its customers.

Utilizing intelligence to find alternatives that connect a company to its customers requires a two-step process. The first step is to interview the client, assess their risk exposure, and understand their goals. This will then inform the intelligence collection process which should include triangulated analysis, boots on the ground resources, and data from multiple sources. This will be collated into an intelligence product that will provide the client with a clear picture of their potential opportunities to de-risk.

The second step is to screen potential alternatives and conduct due diligence. This includes researching potential suppliers and investors, local conditions, and warning indicators that could signal risk in the future. This should give the company the information they need to make informed decisions and the ultimate decision of which alternative to pursue is left up to them. For more information, listeners can visit the Infortal website.

3. Screen potential alternatives and warning indicators.

The third step in addressing supply chain intelligence is to screen potential alternatives and warning indicators. This involves conducting an intelligence cycle for the company by interviewing the client to determine their risk exposure and goals, and then utilizing boots on the ground resources and triangulating analysis from different sources to refine and integrate information into an intelligence product. Companies can also benefit from due diligence to screen potential suppliers, investors, and local conditions.

It is also important to monitor warning indicators of developing risks. These indicators can include contentious presidential elections, the annexation of Crimea, the integration of Russian mercenaries in the Donatas and Donbas regions, and more. This can help the company anticipate any risk that the company may be exposed to, allowing them to make informed decisions on the best alternative supply chain system for them. Finally, the decision is up to the company and their legal counsel, executives, and other pertinent players.

Navigating supply chain intelligence and de-risking requires a two-step process of gathering information and utilizing intelligence sources to create an intelligence product. Companies should also screen potential alternatives, conduct due diligence, and monitor warning indicators to ensure they make the best decision for their company. With the right strategies and knowledge, any business can protect itself from geopolitical risks and achieve success.

Check out Ian Oxnevard on the Riskology by Infortal podcast here.

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Riskology

Infortal on Risk Intelligence Part 4: Sanctions Intelligence with Chris Mason

This is part 4 of a special 5-part series featuring Infortal Worldwide. Tom Fox and Chris Mason discuss sanctions intelligence. Chris talks about regulation changes concerning sanctions, their impact on the business community, and reputational risk.

Chris Mason is with Infortal Worldwide, a global risk firm that provides due diligence services to support key investment decision-making. Infortal Worldwide supports a lot of private equity investment, mergers, acquisitions, and any type of risk scenario a business may face.

  • With sanctions, assessing your exposure and taking a holistic view of your business is important. Look at who you’re doing business with, your partners, your client, and your customer base, and then ensure that you have compliance documents that map out what your business program looks like.
  • Navigating the ever-changing international sanctions regimes starts with having a documented, adaptable plan for everyone on your company’s team. 
  • Regulations task forces are looking at companies in this new age of anti-corruption, so having a solid compliance program is crucial. 
  • Reputation is closely tied to a company’s value: if one decreases, so will the other. Violating sanctions laws can taint a company’s image in the eyes of the public. “Circling back to what we’ve been discussing, taking the steps to understand your risk exposure, setting up a plan that you can put in place that’s easy for your team to follow, can help you avoid these types of reputational risks and regulatory problems,” Chris remarks. 

KEY QUOTE

” Sanctions risk management should now be a key consideration for companies of all sizes.”-  Chris Mason 

Resources

Infortal Worldwide | Email | Tel: 1.800.736.4999