Unveiling the Grupo Aval FCPA Settlement: Lessons in Corporate Responsibility

New Grupo Aval FCPA Settlement

On August 10, 2023, the Grupo Aval Acciones y Valores S.A. entered into an agreement with the U.S. Department of Justice along with the Securities and Exchange Commission to pay $80.8 million dollars as a result of an FCPA fine. These fines were related to a toll road project the company was pursuing in Colombia. What led to these fines? Let’s take a deeper look at what the Grupo Aval settlement involves.

The Grupo Aval Acciones y Valores S.A. (Grupo Aval), is a financial company headquartered in Bogota, Columbia. They do business under a number of subsidiaries, such as the Banco de Bogota and the Banco de Occidente. These subsidiaries offer services to private individuals, while others work mainly with government entities and corporations providing banking services, payroll loans, mortgages, credit cards, equity investments, and treasury operations. 

Grupo Aval was founded in January 1994 by Luis Carlos Sarmiento Angulo, and now employs over 80,000. According to Forbes, the company has an annual revenue of more than $6 billion and profits of over $500 million, so paying an $80 million fine is significant.

 

The Case Against Grupo Aval

The fines leveled against Grupo Aval were brought after the Department of Justice launched an investigation into one of their subsidiaries, Corporacion Financiera Colombiana S.A. (Corficolombiana). The investigation launched by the DOJ and the SEC revealed that the company had worked with an executive from Odebrecht, a construction conglomerate based in Brazil, to conspire to win contracts. 

Corficolombiana made these bribes through its former president and an executive from Odebrecht. In total, they paid over $23 million to members of the Colombian government between 2012 and 2015, including illegal campaign contributions made in 2014. In return for these bribes, the government officials awarded the companies the contract to build a toll highway. This highway was planned to run for 328 miles across Colombia, and Corficolombiana would oversee the construction and operation of the highway. 

Corficolombiana paid over $28 million in order to secure the contract and an extension to it. This led to Grupo Aval having an “improper financial benefit” of around $30 million. However, that’s a very insignificant amount compared to the billions that Odebrecht has made over the years. 

A joint investigation conducted by the U.S., Switzerland, and Brazil resulted in Odebrecht, now rebranded as Novonor, entering into a massive $3.5 billion dollar resolution for global bribery in 2016. This investigation brought to light over $780 million in bribery in more than a dozen different countries, including Colombia, Mexico, Peru, and Argentina. Odebrecht/Novonor made billions in the resulting contracts and other kickbacks from these bribes.

 

The Results

While the SEC had charged Grupo Aval with a higher penalty, they allowed the company to take credit for the fines paid to the Colombian government for these illegal activities. This credit, which was about half of the fine, was contingent on Grupo Aval dropping their appeal of the Colombian equivalent of the SEC’s resolution. 

In the end, Grupo Aval and Corficolombiana paid $40.6 million in criminal penalties and entered a three-year deferred prosecution agreement (DPA). The company and its subsidiary also paid $40.2 million in prejudgment interest and disgorgement for a total of $80.8 million. The final penalties were assessed based on the FCPA’s anti-bribery provisions and accounting provisions. 

Grupo Aval leadership had to publicly acknowledge that they had participated in a bribery scheme. In fact, the DOJ reduced the amount of the fines by 30 percent because Grupo Aval quickly took steps to begin an internal investigation, worked closely and openly with the DOJ and SEC, and took extensive action to determine the cause of the bribery, those involved, and how to prevent such criminal behavior in the future. 

Grupo Aval and its subsidiaries now operate under an enhanced compliance program that uses additional third-party risk management services to help identify potential bribery schemes. 

 

What Other Companies Can Learn from Grupo Aval

This case highlights one of the biggest issues in large companies: the lack of substantive compliance controls and internal communications. Grupo Aval leadership claimed they had no idea what executives in their subsidiary were doing. Had they known, they would have taken the opportunity to address the corruption involved. Reportedly, leadership in the subsidiary did not disclose that they were engaging in bribery and other illicit activities, leaving Grupo Aval vulnerable to the fallout. 

Large corporations with subsidiaries must keep open lines of communication and are required to assess and investigate internal situations. Part of this involves putting the right people in charge. While it’s not clear how much due diligence was done during the hiring of Corficolombiana executives, it does raise the question of whether or not these individuals had previously engaged in bribery and other forms of corruption. 

Infortal works with clients prior to company acquisitions and executive hiring to make certain this type of information is discovered. Our goal is to find information that will help you make these important decisions. 

 

It's Vital to Know Who You’re Doing Business With

Would you be shocked to learn that your new business partner or their subsidiaries are involved in bribery to obtain contracts, engage in money laundering or other fraudulent activities, are engaged in unsafe labor practices, use forced labor, circumvent sanctions, or other illegal or questionable business practices?  It’s always important that you learn about the target company, subsidiary, or partner that you’re planning to work with. 

Just as with individuals, Infortal can provide deep due diligence into businesses, including vendors, partners, and companies you plan to acquire or merge with. We will work to uncover  bribery scandals, corruption, fraud, embezzlement, lawsuits, and other actions that would present a risk to your company. 

 

When to Work with Infortal

Taking a proactive approach is essential to manage risks today and the DOJ expects corporations to take a preventative approach by conducting comprehensive due diligence investigations.

Reach out to Infortal to discuss due diligence investigations into new executives, business partners, vendors, distributors and manufacturers, and when you acquire other companies (M&A). You need to know about red flags with companies before you work with them to avoid unnecessary risk.  Infortal’s due diligence investigations will help you identify signs of corruption before entering into business transactions.  

We provide an extensive array of due diligence investigation services designed to provide your company with enhanced risk management and resilience as you navigate complex risk landscapes. 

 

Russian Sanctions Evasion Risk

Russian Sanctions Evasion Risk

 

Since Russia's invasion of Ukraine in early 2022, it has been faced with an unprecedented number of sanctions--over 10,000--as the United States, the European Union, and other Western countries have sought to undercut Russian wartime revenue and hinder its ability to fund its military efforts.

Although many expert reports suggest that the sanctions have had an impact--especially in the oil sector--in the year since the war in Ukraine began, intelligence suggests that Russia and its allies have successfully evaded many other sanctions using a variety of tactics. However strict this new wave of punitive measures may be, Russia is no stranger to sanctions, having been hit with several of them after forcibly annexing Crimea in 2014. This extended experience with sanctions has provided the Russian state, as well as businesses and oligarchs, with sufficient opportunity to practice circumventing even the most stringent of restrictions laid against them.

Russia's will and commitment to sanctions evasion pose a unique risk for American and other Western businesses looking to work with new international companies, as malign actors increasingly crop up as potential business partners.

The Growing Sanctions Landscape

In order to effectively prevent unwitting engagement with companies and partners who may be involved in evading sanctions against Russian, American and Western businesses must not only understand the basics of the sanctions regulations laid out against Russia, but also be aware of the typical methods used by Russian entities to sidestep restrictions.

To date, the United States and the European Union have sanctioned nearly 2000 individuals and entities for their involvement in the unjust conflict in Ukraine. The sanctions typically fall into two main categories: travel bans and asset freezes. Individuals can be subjected to both categories, whereas entities can only have their assets frozen. In addition, there are sanctions covering the trade in commodities, investment in Russia, and providing certain professional services that facilitate commerce.

Sanctions imposed by the European Union in tandem with the G7 countries have frozen over 300 billion dollars in Russian assets. In addition to the sanctions on individuals and entities, sanctions have also been imposed upon trade with Russia and Russian entities. In principle, this limits the goods and services that Russia can import and export. These sanctions include restrictions upon oil, technology, banking, dual-use goods (goods that have both civilian and military use), luxury items, navigation equipment, energy-related goods and services, space and aviation technology, certain types of heavy machinery, and more.

According to the European Commission Fact Sheet on sanctions against Russia, the EU alone has currently sanctioned 43.9 billion euros in Russian exports and 91.2 billion euros in Russian imports, which equates to 49 percent and 58 percent of all Russian exports and imports, respectively. Importantly, these sanctions apply not only to goods but also to any relevant services that may be imported or exported to Russia. These sanctions, as well as similar sanctions put in place by the United States and G7 countries, are implemented, enforced, and monitored jointly by the Russian Elites, Proxies, and Oligarchs (REPO) Task Force, which multilaterally exerts pressure on sanctioned Russian entities and activities.

Sanctions on Russian Oil

Of these sanctions, perhaps the most discussed recently is the measure against Russia's oil trade. Long reliant upon Russian oil and energy, the EU--supported by its allies-- somewhat hesitantly imposed restrictions on importing Russian oil. Before the sanction was applied, nearly half of all oil in the EU came from Russia. On the flip side, nearly 75 billion euros in Russian oil profits were frozen by this measure, dealing an effective blow to the Russian economy- especially in conjunction with the other sanctions imposed upon Russia. Currently the oil ban covers 90 percent of oil imports from Russia to the EU in addition to 100 percent of coal imports.

Furthermore, sanctions created with the G7 have capped Russian seaborne oil prices at 60 US dollars and pipeline prices at 100 US dollars per barrel. The sanctions upon the Russian oil industry have sparked a notable uptick in what was formerly a rarely used evasion tactic: ship-to-ship oil transfers that involve mixing Russian oil with oil from non-sanctioned countries to continue exporting oil undetected. Beyond these oil restriction evasion tactics, Russia and Russian entities have also been known to do business through shell corporations, obfuscate ownership, launder funds through real estate, hire third party foreign nationals to conduct business, use false trade information to import goods, restructure and liquidate businesses, and use transshipment points, according to the REPO Task Force and the Department of Commerce, Department of the Treasury, and Department of Justice

Russian Sanctions Evasion

Russia will go to lengths to circumvent the many sanctions waged against it, a commitment that extends into many business ventures and parts of the world. Accordingly, US and Western businesses must be vigilant in performing due diligence on potential new business partners to ensure compliance with the existing sanctions regulations. The risks are currently more significant in the supply chain space than they have been historically, so it is important to know who you are actually doing business with.

There are several red flags businesses can watch out for when vetting new partnerships with international companies. In their tri-seal compliance note, the U.S. Department of Commerce, the U.S. Department of the Treasury, and the U.S. Department of Justice list thirteen ways an intermediary corporation may be involved in sanctions evasion. Most notable for US and Western business are:

Infortal Worldwide – Supply Chain & Sanctions Due Diligence

It is important to vet your current supply chain for sanctions risk. There are severe penalties for violating the sanctions regulations established in the US and Europe. As mentioned above Russian sanctions evasion is an increasing risk to US and Western companies. It is essential to understand your risk level to establish a robust risk mitigation plan.

Infortal Worldwide offers a full suite of due diligence investigation services that can place your company in a much stronger position to move forward confidently. This includes vetting any potential business partners or suppliers for a wide range of business risks, including reputational and regulatory concerns. Our due diligence processes cover screening for sanctions risks.

Infortal Worldwide can help protect your company from unnecessary risk and avoid reputational damage in the marketplace.

Europe at War: Energy Crisis

Europe at War Energy Crisis

 

In the nearly year and a half since Russia first invaded Ukraine, much has shifted in the European bloc as it responds and adapts to the conflict occurring in its own backyard. Russia’s apparent commitment to continuing the war has prompted many members of the bloc to ask themselves what could come next, and if Europe could soon also be at war. Aside from rising military tensions and political pressure among NATO and the European Union, Europeans must also contend with energy supply issues and recessions as they navigate their new normal.

Impact of Russian Oil Sanctions

Sweeping EU sanctions against Russian giant Gazprom and other entities have sent energy prices soaring over the past year and a half, sometimes reaching prices 15 times higher than those recorded in 2021, leaving European consumers scrambling to rearrange budgets in order to afford the bills. Although the energy crisis has calmed since the past winter, when the situation was at its most precarious due to high demand and discussion of energy rations, the shock of the ordeal has prompted European countries to re-examine their energy sources and adjust accordingly, especially as a recession threatens to strain the bloc further.  

The recession in Europe is a direct result of the sanctions imposed upon Russian gas imports in the EU. In an effort to curb Russia’s spending capacity, the EU has sanctioned nearly 90 percent of its oil imports from Russia, which previously supplied approximately half of the EU’s total oil imports. In an effort to offset the impact of the sanctions on the average consumer, the EU also committed to subsidizing some energy costs through redistributing increased profits made by energy companies off of the high prices. These drastic sanctions paired with the payouts, though effective, caused considerable instability in the bloc as Germany and France, the two largest consumers of oil in the EU clambered to find alternative sources of oil and natural gas.

Germany, the largest economy in the EU, announced a recession earlier this year in the wake of a 0.3 percent shrinkage in economic output during the first months of 2023, which exacerbates the 0.5 percent shrinkage experienced during the last months of 2022. As a result of the downturn, many consumers have tightened their spending and it is forecasted that private consumption will drop 1.7 percent before the end of the year, with Germany’s GDP also forecast to grow 1.5 percent, as opposed to the 1.7 percent that was originally forecast for the year. Further exacerbating Germany’s recession is its exports market, which was crippled by the sanctions imposed on Russia. German industry had to limit production at the end of last year due to increased natural gas prices, which previously had been supplied by Russia. As a result, Germany’s exports dropped by 5.2 percent in March. Unfortunately, Germany’s lagging economy will likely pose a threat to the wellbeing of the Eurozone. With no strong rebound in sight for Germany, the Eurozone, which otherwise was able to avoid economic catastrophe over the winter, may be hindered in its growth moving forward.

Guiding Light

Despite the woes in Germany, the energy crisis brought about by the war in Ukraine has some bright spots. Importantly, the European bloc has pivoted almost entirely away from the chokehold Russia had previously exercised over the EU energy market. Now, most of the EU’s oil and natural gas imports come from Norway, Texas, and Qatar and Germany, which previously had no facilities to store liquified natural gas, has led the charge in swiftly building holding terminals to aid in storage and distribution.

 

European economy

 

The Netherlands and other countries have followed suit, suggesting a long term commitment to energy diversification as well as to localizing energy production and storage, which in turn could bolster the European economy. Furthermore, the EU is on track to outpace its natural gas storage goals. In March 2023, storage was at 55 percent capacity, which is nearly 25 percent more than it was in March 2022.  

Green Solutions

Beyond oil and natural gas, Europe has turned its attention to wind, solar, nuclear, and hydro- power as potential options for diversifying its energy sources. In 2022 nearly 40 percent of electricity generation in the EU was a result of renewable energy sources. France leads the EU in nuclear energy production, with more than half of its energy production sourced from nuclear plants. Spain provides an example of successful wind generation, with 32 percent of its electricity in 2022 stemming from wind. Solar power also generated nearly a quarter of the EU’s electricity in 2022, contributing to the EU’s first year when renewable energy outpaced fossil fuels for energy production. Hydropower also plays a significant role in the EU’s renewable energy production.

Approximately 70 percent of the hydropower in the EU is supplied by 5 countries: Austria, France, Italy, Spain, and Sweden. Although there have been some snags in the EU’s abrupt pivot to renewable energy, such as unprecedented drought and the phase out of Germany’s last nuclear plants (although use of these had been extended in order to stabilize energy costs in light of the war in Ukraine) as part of a 2011 initiative to eliminate nuclear power in the country, the EU has accomplished a tremendous feat in transitioning so quickly and efficiently to greener energy sources from fossil fuels and Russian oil.

Outlook + Opportunity

Despite minor recessions in Germany and slow growth across the EU, prospects are much more positive than they seemed this time last year. The EU seems to have avoided a catastrophic energy crises and successfully established itself as a self-sufficient entity separate from Russian oil and gas that prioritizes green energy and renewable fuel. US businesses in the oil and gas sectors may see opportunities in Europe opening up as Russia continues to be hit with sanctions.

Further opportunities may present themselves for businesses in the renewable energy sector. China, for example, stood to make a profit on their inexpensive solar panels in the recent push to become independent from Russian gas - an opportunity US and other European businesses could also capitalize. On the flip side, with China’s economy ramping back up, Europe will face steeper competition for liquified natural gas - a main source of energy in Asia. For exporters of LNG in the US, this could be a boon. For now, the world can breathe as the worst case scenarios of the European energy crises seem to have been averted, and indeed, growth both in European and American business may well be on the horizon, especially in the energy sector.

Recommendations for US companies

The recent energy sector crisis in the EU has opened up opportunities for new suppliers and innovative solutions. This presents investment opportunities for companies in several sectors, particularly for companies in the green energy space.

It will be important to keep a pulse on the energy situation as the EU heads into the 2023 winter season. The seasonal increase in the demand for energy will test the emerging strategies that EU member states have put in place. This dynamic may also force quicker decision making in terms of selecting new energy suppliers.  

Infortal – Geopolitical Risk Analysis and Due Diligence

If you are considering entering the EU energy market, there are important regulatory requirements to consider along with an increasingly complex geopolitical risk landscape in the region.  

Infortal Worldwide offers a full suite of due diligence investigation services that can place your company in a much stronger position to move forward with foreign investment plans. This includes vetting any potential partners for business risk exposure, reputational and regulatory concerns. Our due diligence methodology also covers screening for sanctions risks, which is critical in the energy space.

Infortal Worldwide can help protect your investment from unnecessary risk and avoid reputational damage in the marketplace.

 

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Solving Risks Before They Start™

CHINA 2023: The Year of the Sanction

American and European sanctions against Russia have largely dominated discussions surrounding sanctions against foreign entities in 2022 and 2023 in an effort to hobble its war of aggression in Ukraine. Behind the scenes, however, there has been a slew of other sanctions in operation as the United States quietly tries to curb Chinese technological advancement and military operations. These new US sanctions take aim at semiconductor and chip manufacturing in China, ostensibly in the name of stymying Chinese and other foreign threats to US national security. Recently, in light of heightened tensions between the US and China--spurred on by the discovery of a Chinese spy balloon and surveillance base in Cuba, to name a few highlights--these sanctions against the Chinese chip industry have garnered more and more public attention, especially in the wake of China's wave of new legislation introduced this summer.

The Chinese government has not stood by idly. China's new Foreign Relations Law provides a legal platform for China to wage a largely unrestricted economic countermovement against the crippling sanctions imposed by the US. Aided in no small part by the vague language of the legislation, China has already lashed out against US businesses like Lockheed Martin and Raytheon for their involvement in shipping weapons to Taiwan and Micron for alleged cybersecurity concerns, and further actions from Xi Jinping's administration are to be expected.

Roadmap to Now

So how did it come to sanctions on computer chips and semiconductors and China's tenacious new economic responses? Signs point to the former Trump administration's restriction of Chinese technology giant Huawei in 2019 as the event that proved the gravity of the chip and semiconductor market. The restrictions against Huawei, introduced in 2019 and tightened over the next several months, deemed the company a risk to national security and, as a result, drastically reduced its ability to purchase American parts and technologies. Further tightening of the restrictions against the company subjected it in May of 2020 to the little known foreign direct product rule, which expanded US extraterritorial influence on trade by limiting the exchange of products that may not have ever been in the US, provided it was manufactured using American technology or software.

The kicker: nearly every semiconductor and chip maker on the planet uses technology and software that was somehow tied to the United States. This measure paved the way for further restrictions and sanctions against Chinese entities once it became clear just how effective it was in debilitating Huawei's business model. In 2020, for example, Huawei was the largest smartphone manufacturer in the world, ahead of popular brands such as Apple and Samsung. By 2022 Huawei's revenue had plummeted to 642.34 billion yuan from the whopping 891.37 billion yuan it had recorded as smartphone manufacturing chart-topper in 2020. Evidently, the sanctions on Huawei and its technology had an incredible impact on the company and opened the door for future, more ambitious sanctions from the Biden administration.

What do the US Sanctions Impact?

The simple answer: almost everything.

Semiconductors and computer chips are the lifeblood of modern technology and trade. They support the existence of credit cards, microwaves, smartphones, cars, ChatGPT, defense systems and more. Without them, there is almost no feasible way to remain at the forefront of any industry or even maintain a modern lifestyle. All of this is now at risk for China as it scrambles to respond to the Biden administration's sanctions, which target not just individual companies, but the entire industry in China. The sanctions, which were enacted unilaterally, are directed at the whole geographic area of China and went beyond simply barring sales of advanced chips (used in AI and other semiconductor projects) to Chinese companies to sharply limiting China's access to the materials needed to produce its own devices by prohibiting the sale of semiconductor manufacturing equipment.

Furthermore, these measures restrict third-country production using the American equipment and technology, and bans American persons from working on or supporting the Chinese production of advanced semiconductors. Most of the restrictions are imposed through licensing and take aim at three major categories of chip: logic chips: FinFET or superior, which corresponds to 16 nanometers (nm) or lower technology nodes; short-term memory (DRAM): 18 nm or lower; and long-term memory (NAND): 128 layers or higher. When these unilateral sanctions are paired with additional restrictions from the Netherlands and Japan, the two other powerhouses in the chip and semiconductor sector, China is left almost completely ostracized from chip and semiconductor technology and decades behind the cutting edge of technology.

The Chinese Response

The Chinese Response

Although China's response to the 2022 sanctions was not immediate, its new July legislation has hit the ground running- as demonstrated by its actions against Lockheed Martin, Raytheon, and Micron. In addition to targeting specific US businesses, it has also broadly limited the export of minerals, specifically gallium and germanium, which are used, among other things, for semiconductor production. Gallium, of which China produces 98% of the world's supply, is integral in many US defense technologies, and a metal shortage could prove extremely problematic for the US military moving forward. Some other banned minerals, like ingot, are also key for manufacturing solar panels and batteries, industries not directly related to the chip and semiconductor trade, but still important to US business. On the more intangible side, there is power simply in the passage of the law and the opaque language it employs. The legislation demonstrates China's commitment to taking a stand against the US sanctions. Moreover, the vague language allows the Chinese government a certain sense of unpredictability in its countermeasures as it has the freedom to determine what is and is not, for example, a threat to its security and thus a target for retribution.

Implications for US Business

For US business, the American sanctions and the Chinese response thereto are something of a double-edged sword.

On the one hand, sanctioning Chinese businesses allows American and Western businesses to thrive with less competition, as was the case when Huawei's smartphone output was curbed by Trump-era restrictions. Politically, too, US businesses can be more sure of their security and the protection of American national security interests. China's responses can also motivate the US to turn within itself and to other allies to bolster its market for manufacturing and technology.

On the other hand, the US faces economic consequences if it cannot replace China as a top trading partner in the field. By restricting sales of materials to China, the US, in turn, hurts its own immediate profit potential. Furthermore, just as the restrictions allow the US to explore more homegrown options, the same goes for China.

Sanctions motivate China to become increasingly independent and thus less susceptible to checks from the United States down the line. In addition to the tenuous position the sanctions put the market in, sanctions compliance also falls largely to individual businesses. US businesses must necessarily be aware of their trading partners, their personnel, and their products in order to ensure that they do not run afoul of the sanctions imposed upon China or aid in practices that may help Chinese businesses evade the sanctions imposed upon them.

How We Can Help – Supply Chain & Sanctions Due Diligence

It is important to vet your current supply chain for sanctions risk. There are severe penalties for violating the sanctions regulations established in the US and Europe. In addition, the region's increasingly complex geopolitical risk landscape makes it possible that foreign governments could target your business with sanctions. It is essential to understand your risk level to establish a robust risk mitigation plan.

Infortal Worldwide offers a full suite of due diligence services that can place your company in a much stronger position to move forward confidently. This includes vetting any potential partners for reputational and regulatory concerns. Our due diligence methodology also covers screening for sanctions risks.

Infortal Worldwide can help protect your company from unnecessary risk and avoid reputational damage in the marketplace.

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Solving Risks Before They Start™

Unveiling the FTX Scandal: Unraveling Fraud and Financial Misconduct in the Cryptocurrency World

The FTX Saga Continues

 

On November 2, 2022, the news website CoinDesk published an article that left many people wondering just how solvent the cryptocurrency trading platform FTX truly was. With questions about other companies founded by FTX CEO Sam Bankman-Fried, many who held FTT, the platform’s cryptocurrency token, began selling their tokens. Within about ten days, the company had lost a significant amount of money, had their assets frozen in the Bahamas, filed bankruptcy, had Bankman-Fried replaced by a new CEO appointed by the court, and reported an alleged massive data breach. 

By the end of 2022, Bankman-Fried had been arrested and many investors in FTX had launched lawsuits against the platform, though most recognized that they would likely never recoup all of their money.

With FTX gone and Bankman-Fried out on bail awaiting trial after being extradited to the United States, most expected the worst of the scandal to be over with. However, that turned out to not be the case when Bankman-Fried’s massive $250 million bail bond was revoked and he was arrested on August 11, 2023, just a few months before his trial was expected to begin in October.

Let’s take a brief look back at the FTX saga and what Bankman-Fried did to end up in jail. Along the way, we’ll discuss how Infortal can protect investors from becoming victims of fraudulent companies like FTX.

 

A Summary of the FTX Scandal up to August 2023

 

FTX fell apart over the course of about a week and a half following the CoinDesk article. This article outlined how Alameda Research, a testing firm that Bankman-Fried also ran, had about $5 billion dollars’ worth of FTT tokens. The investment foundation associated with Alameda also had a large amount of money in FTT. This raised a number of questions about these companies’ solvency and what else Bankman-Fried may have failed to disclose.

Four days later, Binance (a company that later faced its own scandal revolving around shady payments) announced that it was pulling out of FTX and would sell all of its FTT tokens which were worth around $530 million. Binance’s CEO stated that they had conducted a risk management analysis on FTX and had decided to liquidate their investment. 

The Binance announcement set off alarms for other investors, and within a few days, requests for withdrawals totaling over $6 billion had been made from FTX investors. Bankman-Fried had no way of making these payouts. After considering several options, he reached out to Binance itself for a bailout. Unfortunately, although the two did come to an initial agreement, Binance later revoked their offer after a due diligence investigation brought to light a variety of additional issues with FTX’s management, including potential fraudulent behavior and the mismanagement of funds.

This type of due diligence assessment is something Infortal often does for our clients. We can help you assess risks in investments, mergers, acquisitions, and even C-suite hiring, enabling you to avoid the pitfalls and reputation damage that working with the wrong business partners may bring. 

Without the bailout, the securities regulations branch of the Bahamas, where FTX’s FTX Digital Markets subsidiary was headquartered, stepped in. They froze all assets in the Bahamas. 

The same day, California launched an investigation into the platform. A few days later, on November 11, Bankman-Fried resigned as FTX’s CEO and was replaced by a court-appointed interim CEO to see the company through the bankruptcy process. FTX filed bankruptcy that day, revealing that around 130 other subsidiaries and assets would be a part of the bankruptcy case.

After claims of being hacked, lawsuits from investors, and additional actions by the Bahamas, Bankman-Fried was arrested on fraud charges. He was then indicted by the U.S. government on a number of charges, including securities fraud, money laundering, violating anti-bribery laws,  and conspiracy. 

The appointed interim CEO stated before a US House committee that FTX had little to no financial records or bookkeeping documents. 

On December 22, 2022, Bankman-Fried was released on bail. His bail was set at $250 million, the highest bail amount in U.S. history. He moved in with his parents in California, but he was ordered to wear a monitoring device and instructed to remain within a specific area in Northern California. He was set to face eight criminal counts in federal court on October 2, 2023. He had pleaded not guilty to all of these counts on January 3, 2023.

Over the past several months, prosecutors have dropped several charges against Bankman-Fried, including the charge of conspiracy related to illegal campaign contributions. The reason for the modified indictment was that the government is required to receive permission from the Bahamas for any charges due to Bankman-Fried being extradited from the island country. Previously, the prosecution had also dropped a charge related to violating anti-bribery laws.

 

The Saga Continues  - Bankman-Fried’s Arrest in August 2023

 

As investors worked to recover whatever money they could from the smoldering remains of FTX, Bankman-Fried seemed to keep a low profile while waiting for his trial. 

However, that all changed on August 11, 2023, when federal prosecutors petitioned a judge in New York, where the case was being tried, to revoke bail. They alleged that Bankman-Fried had engaged in witness tampering

Bankman-Fried did request that his arrest be delayed until his appeal of the charges was heard, but the judge in the case denied this request. If his appeal is denied, he will remain in prison until his trial in October. 

The judge stated that his denial was based on the conclusion that there was probable cause for the witness tampering charges. In fact, he stated that the evidence suggested that Bankman-Fried had tried to influence witnesses at least twice while out on bail. Rather than have Bankman-Fried detailed in the Metropolitan Detention Center, federal prosecutors requested that he remain in custody in Putnam, New York. The reasoning for this request was that he would need internet access to prepare for his defense, something that was limited at the detention center.

 

What Led to these Charges?

 

Over the summer, federal prosecutors and Bankman-Fried had participated in a number of pre-trial hearings. These hearings mainly focused on Bankman-Fried’s interaction with the press. Prosecutors claimed that some of his press exchanges could be categorized as witness tampering and that some of his actions counted as attempts to evade the conditions of his bail. The judge had already warned Bankman-Fried that he needed to cease these actions.

Prior to his bail being denied, several members of the press had sent letters expressing their belief that Bankman-Fried’s actions should be considered an exercise of free speech. He was also supported by some legal professionals who felt that his First Amendment rights were being violated. Finally, his legal team expressed that Bankman-Fried would be unable to fully prepare for his October trial if he were in jail. Prosecutors expressed their willingness to agree to have Bankman-Fried held at a facility with full internet access, hence their request for detainment in Putnam, New York.

 

The Evidence Against Bankman-Fried

 

According to the prosecution, Bankman-Fried had sent more than 100 emails over the summer to various people in the media. He had also made more than 1,000 calls to reporters and other members of the press. Following these actions, Bankman-Fried’s bail conditions were modified to include restrictions on his internet access and smartphone use. 

The final act that led to the request to revoke his bail came when Bankman-Fried released the diary of Caroline Ellison, his ex-girlfriend. Ellison had served as the CEO of Alameda Research and had pled guilty to her own criminal charges in December of 2022. She has also cooperated with federal prosecutors and is expected to testify in Bankman-Fried’s trial.

The judge directly addressed Bankman-Fried’s release of the private diary entries as a tactic aimed at discrediting Ellison as a witness while also hurting her reputation. The prosecutors and the judge saw this as indirect witness intimidation via the press. 

As of August 17, Bankman-Fried is in custody and his trial remains set for October 2, 2023. 

 

Infortal Can Help You Avoid Investing in Corrupt Businesses

 

No matter what happens to Bankman-Fried and the others involved in the FTX scandal, numerous people and companies lost money by investing in FTX. Whether it was a small amount or millions of dollars, many investors will never fully recoup the money they had in FTT tokens. 

What can you do to avoid making the same mistake as these investors? Know who you’re working with. Infortal can assist you with deep dive due diligence and risk assessment. This will help you fully understand what risks you’re about to take. We will look into the key executives and the company’s past, including any past criminal actions, questionable business practices, conflicts of interest, interactions in foreign countries and overseas subsidiaries and numerous other issues that will inform your decision making. 

You may also find that the risks are much more severe than you expected them to be and that may affect the value of the transaction. By avoiding these costly mistakes, you may end up saving not just a large amount of money but your reputation and even your company’s very existence. Contact Infortal today to learn more about our deep dive due diligence services.

 

Infortal’s Geopolitical Risk e-Guide: An Introduction to Risk-Based Solutions

Geopolitical risks must be taken seriously, but there are many CEOs who don’t fully comprehend what these risks are or why they need to fully understand how geopolitical risks could affect their business. If you fail to understand what risks you’re facing when acquiring or merging with a company in a foreign country, hiring an international vendor, or partnering with another company, it can have serious consequences. 

 

You could end up unknowingly breaking sanctions, which can lead to stiff fines from the U.S. government. You could become embroiled in illegal weapon sales, bribery, or blackmail as other companies funnel money through your business. There are so many ways you could damage your company financially or destroy your good reputation without even realizing what’s happening. 

 

To help business owners learn about geopolitical risks, Infortal has created a free e-guide. This guide covers the basics of these types of risks as well as how we can help you mitigate or eliminate them. Read on to learn what the guide covers, then download it to get more in-depth information on geopolitical risks.

 

Be Proactive, not Reactive, to Geopolitical Risks

 

Many business executives plan for emergencies and disasters. You likely have a number of disaster recovery plans for everything from a fire in the building to a cyber-terrorism attack. While these plans may be very thorough, they’re still a form of reaction. Reacting means the disaster has already occurred. Your company has already been damaged—now you’re just dealing with the fallout from that event.

 

Being proactive, on the other hand, prevents the damage from occurring. This is why many companies send their executives to a risk management program or hire a risk manager to assist them in learning what risks they face and how to successfully mitigate them. However, these risk management programs often do not touch on geopolitical risks. This leaves you open to issues such as partnering with a company that uses child labor or acquiring a business that often engaged in bribery. 

 

Geopolitical risks go beyond mergers, acquisitions, and partnerships. Some business owners believe they can ignore geopolitical risks because they’re not directly working with a company from another country. However, with today’s global supply chain, it can be almost impossible to not rely on an international vendor. You may buy components from another U.S. business, but that business may get some of the materials it needs from a company in South America. That company, in turn, could work with Russia, which is currently under sanctions due to its war with Ukraine. You could then get fined for breaking sanctions even though you aren’t directly working with Russia. 

 

Infortal’s full suite of geopolitical risk assessment services will help you avoid these risks. We will assess any business you’re planning to work with, including their history, the state of the region they work in, their key personnel, and their partnerships. Our deep dive due diligence will give you a more complete picture of who it is you’re working with and highlight any risks they may pose. 

 

Reducing Risks Begins with Education and Awareness

 

How can you be proactive in dealing with geopolitical risks? By being educated and aware of what risks are out there. If your risk management program doesn’t cover these risks or your risk management consultant isn’t familiar with them, you need to educate yourself. While geopolitical risks are a type of risk, general training isn’t enough to identify and properly assess them. You need a unique skill set to fully understand how geopolitical risks can affect and damage your business.

 

Infortal has created a series of courses on geopolitical risk and intelligence solutions. These courses include introductory and master classes taught by experts in the field of geopolitical risk assessment and management. Courses cover areas such as sanctions, regulations, economic espionage, corruption, energy geopolitics, inflation, due diligence investigations, trade secrets, and responsible investing. We go into detail on events such as the war in Ukraine, the current political environment in China, and the future of Europe. 

 

In addition to learning more about geopolitical risks by diving deeper into topics covered in the e-Guide, these courses have been approved as Continuing Legal Education classes by the California State Bar. Those in the legal profession can gain CLE credits while expanding their knowledge and understanding of geopolitical risks. 

 

Conduct the Proper Level of Due Diligence

 

Partnering with Infortal will ensure that the proper type and level of due diligence is always done, whether you’re looking at a new partnership, entering a new market, or selecting a new vendor. It’s always a risk when you enter a new market, but it’s even more of a risk if you do so without understanding that market. There are a multitude of cultural and social differences that can affect how you should approach a new business venture. Some of these differences can be incredibly subtle, such as the tone or volume of your voice or the specific words you use. One small misstep can lead to the end of a partnership.

 

Then there are social and cultural events and developments that, while nothing major now, can be an indication that the region’s stability is not as strong as it may seem. Low pay and harsh working conditions often pave the way for labor strikes and riots. Rumors of corruption may be more than just rumors—you may be entering an area where bribery and blackmail are commonplace. In some cases, war can even break out, leading to property damage, loss of employee life, and the disruption of all your business deals in the area. Without fully understanding the conditions of this market, you put yourself at risk of these and many other potential disasters.

 

Some investigations need to be done at the local or regional level, while others need to be done at the country level. For example, one region may not have many signs of cartel activity, but when you look at the country overall, it becomes clear that drug cartels have a large amount of power over the government. Just because no cartel is currently operating in the region you’re considering doesn’t mean they won’t later or that the region is free of corruption. Local, regional, country-, and even continent-level or global risk assessments need to be done for you to have the full picture of the risks you’re assuming.

 

Do Your Deep Dive Due Diligence

 

You may have done some due diligence into the company you’re looking to acquire, merge with, or partner with, but do you really know how they operate? Do you know if they give bribes to others or accept bribes? Have they had executives embezzle funds or award contracts to companies run by family members or other associates? There are so many ways that companies can perform illegal or morally questionable activities that a basic due diligence report won’t uncover.

 

Infortal’s deep dive due diligence investigations can find these activities, allowing you to judge how much of a risk you want to take on. In some cases, such as a cover-up involving a single executive who is no longer with the company, you may decide the risk is worth it. In other cases, such as widespread financial misconduct, you may decide it’s not. We believe you should always be able to make such a choice, which means you need to have as much information about the business and its leadership as possible.

 

We bring our years of experience to work for you in a boots-on-the-ground approach. We do more than simply run a quick search on a business. We dig into financial records, court records, and even the dark web to gather the data you need to understand the risk you’re about to take. 

 

Avoid Social, Environmental, and Governance (ESG) Mistakes

 

ESG may be a fairly new acronym, but companies have been dealing with social, environmental, and governance issues for decades. Making social or environmental mistakes can lead to fines, loss of reputation, and even lost revenue as customers abandon you for competitors that protect the environment and are dialed in to today’s social issues. However, since ESG profiles are still fairly new, you may not know what your profile looks like. You may also not think to dive into other companyies’ profiles. This can leave you woefully unprepared to make a risk assessment.

 

If you fail to look at the ESG profile of a company you’re partnering with in China, you may find that it fails to properly compensate its workers or provide them with safe working conditions. This can damage your reputation. Buying a company that does business in Europe may seem very profitable, but if you don’t understand the testing and reporting regulations in the EU, you may quickly be fined for non-compliance. Infortal will help you evaluate your own ESG profile to determine where you can approve while also presenting information on potential acquisitions, mergers, and partners.

 

Download our Free Geopolitical Risks e-Guide Today

 

To learn more about geopolitical risks, click here to download our free e-guide. You can reach out to Infortal to learn more about how we can help you or to get more information on our geopolitical risk courses. 

 

Cryptocurrency –Regulatory Crackdowns and Inflation Risks

We’ve taken a look at what cryptocurrency is and how it can be a risk for you and your business, but there’s more to it than that. While understanding the risks of crypto is certainly important, it’s also important to see the benefits. Cryptocurrency can be useful, but you must be careful about who you deal with. You also must understand the regulations surrounding it. While it’s true that there were few, if any, regulations for cryptocurrency not that long ago, today various governments and regulatory bodies have realized that this form of currency isn’t going away. They’ve stepped in to regulate it and eliminate some of the risks, prevent fraud, and stop money laundering. However, if you don’t understand those regulations, you may end up facing stiff regulatory fines.

 

Let’s take a look at how cryptocurrency can affect your company, including its investors, and what regulations are in place that you will need to follow to avoid penalties. As always, Infortal is here to help you with understanding the risks to your business and mitigating them.

 

Increased Regulation: SEC Enforcement on Crypto Markets

 

The U.S. Securities and Exchange Commission has attempted to put into place restrictions and regulations to reduce risks and legitimize the use of cryptocurrencies. However, due to the fact that crypto is decentralized and global, it’s very difficult to fully regulate cryptocurrencies. Another question that has held back regulations concerns how cryptocurrencies should be classified. If it’s a security like a bond or stock, then it falls under the SEC. However, if crypto is determined to be a commodity or some other classification, then it would fall under the CFTC or a different agency. So far, the SEC has taken the lead in regulating cryptocurrencies based on a Supreme Court case that created criteria for securities.

 

Following the November 2022 collapse of FTX, one of the top cryptocurrency exchange markets, the SEC has increased their attempts to minimize the amount of illegal crypto activity in the U.S. However, because crypto is decentralized, the agency is limited in how effective it can be in combating bribery, fraud, and other illegal activities funded by crypto. The SEC has also received pushback on some of their regulations. Some have said these regulations are simply pushing more crypto exchanges and platforms to other countries, while others have said that the SEC’s rules are too vague and need to be clearly defined.

 

That hasn’t stopped the SEC and other organizations from taking action against companies and exchange platforms. For example, the SEC has sued both Binance and Coinbase, both exchange platforms, for violating regulations. These lawsuits stated that the platforms committed various securities law violations, but in response, Coinbase pushed the SEC to determine if digital tokens are actually securities or not. This question and others continue to make it difficult to regulate cryptocurrencies in the U.S.

 

Even celebrities haven’t remained immune from the SEC. Kim Kardashian, for example, was fined $1.26 million by the SEC for her promotion of EthereumMax, a type of cryptocurrency. She had failed to disclose that she had been paid for her endorsement. Other celebrities who have faced crypto-related fines include Lindsay Lohan, DJ Khaled, and sports figure Paul Pierce. This means that if you, your executives, or your company as a whole endorse, or appear to endorse, a cryptocurrency, you could find yourself under investigation, especially if you fail to report any payments received for that endorsement. This will likely lead to reputation damage plus fines and penalties.

 

Inflation: A Major Risk from Cryptocurrencies

 

Some people believe cryptocurrencies are like gold: they’re inflation-proof. However, that’s not true. Prices can fluctuate, even with gold. While it’s the case that neither gold nor cryptocurrencies can easily be printed like money, thus making it more difficult for inflation to occur, there is still the risk of losing a lot of money. In fact, many experts have started to call into question how inflation-proof crypto is, especially after the past few years and the roller coaster changes various digital currencies have seen.

 

In fact, inflation does have a direct impact on cryptocurrencies. One example of this occurred in  2022 when the Federal Reserve began increasing the interest rate in order to slow inflation. The result was that cryptocurrencies such as Bitcoin dropped dramatically in value. Bitcoin lost almost two-thirds of its value, going from a high of $65,000 per Bitcoin to around $18,000. 

 

This leads directly to the biggest risks of cryptocurrencies: how quickly they can go from being worth thousands to being worth pennies. Bitcoin’s rapid changes are not the exception: many digital tokens or currencies change by ten percent or more on a regular basis, which puts them in the volatile category for many investors. Without more consistency, it’s hard to see why investing in crypto is a better move than investing in other options. Even those who carefully watch the market in order to buy low and sell high can be caught unaware. 

 

A lack of data doesn’t help

Gold is often considered inflation-proof when you look at it in terms of decades, even though its value can change within a year or even a month. However, we don’t know if cryptocurrencies will show the same resilience over time. They could be a type of dam against inflation, as some investors believe. However, without more data, we simply don’t know how cryptocurrency will act in the long term. It’s possible that it truly will be a great investment, but it’s also possible that it will decline until there are few, if any, digital currencies. This is especially true if crypto continues to be used illegally for fraud and bribery or if agencies such as the SEC place very heavy regulations on trading. 

 

There are simply too many unknowns to really predict how cryptocurrency will fair in the future. It could, as some believe, lead to major changes. It could also be a passing fad that will eventually settle into a shadow of what it once was. Currently, it’s a risk that you will want to carefully research before investing.

 

One Potential Future: Crypto as a National Currency

 

While no one can accurately predict where cryptocurrencies are going, there is one interesting possibility: cryptocurrencies could become national currencies. While Bitcoin isn’t going to replace the dollar anytime soon, even the White House has released a document theorizing about a digital dollar. This memo discusses the possible creation of a U.S. central bank digital currency (CBDC), a type of cryptocurrency that would be accepted across the country. 

 

While the U.S. hasn’t moved forward with a CBDC as of June 2023, other countries have experimented with a digital currency. The Bahamas created a digital currency in 2020. The Sand Dollar, as it is called, is valued the same as the Bahamian dollar. However, adoption has been slow, partially due to the collapse of FTX. Another issue is that the Sand Dollar, as a CBDC, isn’t quite the same as Bitcoin or other cryptocurrencies. However, many people don’t fully understand the difference, making them hesitate to move to a digital currency. 

 

China also created a CBDC in 2020 after spending years of research and development. The digital yuan was released for early testing in 2020, and all other private cryptocurrency transactions were banned in the country the year after. However, again, few people were quick to change over from paper currency. China hoped the 2022 Winter Olympics in Beijing would boost the use of the currency, but due to the global pandemic, they did not see the results they wanted. That said, the country is still eagerly moving forward with the digital yuan and hopes to make it an international currency in the future.

 

Balancing Risks and the Future of Cryptocurrency

 

There are certainly risks to using cryptocurrencies. New regulations are being put into place, while other regulations are being amended or changed. If you don’t keep up with these rules, you could easily find yourself the subject of an investigation by the SEC or another agency. It’s possible cryptocurrencies could even be reclassified as something other than a security, which could lead to a major rewrite of all the regulations surrounding them. 

 

However, at least for the immediate future, cryptocurrencies are not going anywhere. In fact, it’s likely to become easier and more secure to make transactions, especially in digital currencies such as those used by the Bahamas and China. Despite that, there is also no question that the crypto market will continue to be fairly volatile and used for money laundering, bribery, fraud, and other illegal activities. The decision on whether to make use of cryptocurrency or to avoid it for now is one that many businesses and individuals will struggle with over the next few years. 

 

This is where working with Infortal can help you. Our team has years of experience in understanding regulations and business risks, including the risks carried by cryptocurrencies. We can help you examine potential mergers and acquisitions, agreements, and other transactions so that you fully understand the business risks you’re assuming and what you can do to mitigate those risks. Whether it’s with cryptocurrency or a more traditional financial transaction, you want to make certain you’re making the right decision. Reach out today to learn more about what Infortal offers and how we can help you. 

Cryptocurrency: Examples of the Dangers that Cryptocurrency Pose

Cryptocurrency, or crypto for short, is a fairly new term. Coined in 2008 by a person using the pseudonym Satoshi Nakamoto, the term combines the words “cryptography” and “currency.” Crypto is any type of digital currency that is maintained by a decentralized system instead of one single authority. While some cryptocurrencies such as Bitcoin have become worth thousands of dollars (on June 14, 2023, one Bitcoin was worth almost $26,000 USD), others have never been worth more than a few pennies. The market has fluctuated greatly, too, leading some authorities to declare crypto to be nothing more than a new, digital form of fraud. 

 

That said, cryptocurrencies are, at least for the immediate foreseeable future, here to stay. As a business owner, it’s vital that you understand at least the basics of crypto and how it can affect your industry and your investors. If you do use crypto or are considering it, you also must recognize the risks it poses. Here are some examples of companies that have committed fraud, money laundering, and other crimes through cryptocurrency and what you can do to recognize such businesses.

 

Infortal can help protect you from bad actors with our due diligence services

 

How Cryptocurrency Can Be Used Illegally

 

Crypto can, and has, been used in a variety of criminal ways, including to fund terrorism, bribe officials, and evade sanctions. There are a few reasons for this, including the fact that there are few regulations surrounding crypto and that it’s very easy to make use of crypto platforms and services located in other countries. Since it can be very difficult to track transfers from one platform to another, terrorists and others seeking to avoid the law can easily move money into and out of countries. While it may be difficult to purchase cryptocurrency anonymously in the U.S. and Europe, it’s much easier to do so in other countries. 

 

The use of decentralized systems also makes it difficult to block transfers into countries that have been sanctioned. For example, the U.S. has had to block Bitcoin and ether addresses that have been used to transfer money to Russia. Russian nationalists were using cryptocurrency to violate sanctions. One of these addresses was actually connected to a company founded by Sam Bankman-Fried, an individual we will discuss in one of the examples below.

 

Examples of Companies that Have Used Cryptocurrency to Commit Fraud

 

FTX

While this form of currency was very hot in 2021, values started cooling in 2022. In fact, the value of a number of new cryptocurrencies dropped dramatically, resulting in many people losing money. This caused a number of different crypto exchange platforms to close. However, one platform, FTX, seemed to weather this storm without any issues, or so it appeared.

 

In reality, the platform, its founder, Sam Bankman-Fried, and other leaders were committing a number of different fraudulent acts in order to make it appear that FTX remained stable. As part of this fraud, he stole billions of dollars from investors. Bankman-Fried had a dozen charges leveled against him by the SEC, including conspiracy to commit fraud and securities fraud charges. He was found to have used customer deposits to fund various other venture investments, support the company, advertise FTX as a trustworthy platform, and even make illegal campaign donations to various elected officials in order to have some control over what crypto regulations were passed.

 

While Bankman-Fried has pled not-guilty and is still attempting to overcome the charges brought against him as of June 2023, other leaders in the company did plead guilty to fraud and other charges, including a co-founder and two other executives. Companies and investors who had not done any deep due diligence could have blindly invested in FTX. As a result, they could have lost thousands or millions of dollars. 

 

The lesson here is that if a business appears to be doing too well, they may have engaged in some shady practices to avoid failure. Of course, you’ll want to invest or partner with a company that is successful, but you should always do your due diligence before doing so. That’s where Infortal comes in. We can assist you in conducting a thorough deep due diligence investigation, gathering all of the relevant information about a company that a standard due diligence search may not uncover.  

 

Celsius

Celsius was another cryptocurrency company that found themselves rapidly losing money as the crypto bubble burst. In July of 2022, they filed for bankruptcy, making them one of the few crypto companies to seek relief under the law. This was one of the handful of bankruptcy cases that made lawmakers realize that there were few laws that directly addressed digital assets and how such assets were treated through bankruptcy. This by itself was something of a wakeup call to investors as they realized that bankruptcy laws and protections may not apply to their digital currency investments.

 

In addition to finding that they had little protection under bankruptcy laws, investors also found out that Celsius may have been engaging in corrupt lending practices. A judge in the trial ordered a probe into the company to determine if Celsius engaged in acts similar to a Ponzi scheme. Some investors believed that Celsius was using deposits from new investors to pay previous investors. There was enough evidence to convince a judge.

 

Celsius isn’t the only cryptocurrency platform to be accused of such fraudulent practices. Terraform Labs, Three Arrows Capital, and Voyager Digital all went bankrupt following crypto crashes. In some cases, the founders of these companies fled their respective companies and have managed to evade authorities, making it seem clear that they did engage in some form of illegal activity such as corruption, bribery, or money laundering 

 

Fortunately, with Celsius, it seems investors may recoup at least some of their money. In May of 2023, the company accepted a proposal to form a new company that would be wholly owned by its account holders and controlled by a board of directors appointed by its creditors.  

 

Again, had investors done any due diligence investigation into Celsius before investing, they may have found some warning signs that it wasn’t a company they should have partnered with. Unfortunately, because crypto was seen as the exciting new investment fad, few people took the time to really learn about it. They failed to see the warning signs and, as a result, lost a lot of money, not to mention reputation damage.

 

Binance

 

Binance was once known as the largest cryptocurrency exchange service in the world. Investors who were serious about crypto investments used the platform, and it routinely handles millions, if not billions, of dollars in transactions every day. However, the service failed to do any due diligence into who was using it. Even basic due diligence investigation would have detected or prevented fraud, sanctions violations, organized crime syndicates, and state sponsored actions. 

 

It was estimated that billions in illicit funds were funneled through Binance between 2017 and 2021. The service did not know who was creating accounts or where the money being used to purchase crypto was coming from. Because of this, numerous hackers and other fraudsters used the platform to fund bribery, money laundering schemes, and other illegal activities

 

One of the biggest use of Binance for illegal activities occurred in September of 2020. A group of hackers from North Korea attacked and stole $5.4 million in cryptocurrency from an exchange company in Slovakia. They then created several dozen accounts on Binance anonymously and used the platform to move the stolen money to other accounts. All of this was done within a very short period of time. 

 

It wasn’t the only case of Binance being used for illegal activities. In total, authorities believe more than $2.3 billion in funds has been moved through Binance. This money came from cyberattacks, fraud, drug sales, and other illegal activity, and much of it was used to fund other illegal actions. In fact, evidence suggests the money stolen from the Slovakian exchange was used to fund research into nuclear weapons in North Korea.

 

Binance refuted many of these facts, claiming that their platform was secure and that they did perform checks on the funds routed through their platform and on those who created accounts. However, despite this claim, hackers and others continue to use the platform. Binance has even refused to suspend accounts from Russia, leading to money being funneled into the country as a way of avoiding sanctions. 

 

Currently, the U.S. Department of Justice has an ongoing investigation into Binance, and in March of 2023, the Commodity Futures Trading Commission filed a civil suit against the service. Companies and investors will want to be very careful when working with any company that makes use of Binance. It’s possible their funds could end up being used in a way that violates sanctions, bribe officials, or directly fund other illegal activities. 

 

Infortal Can Help You Avoid the Pitfalls of Cryptocurrency

 

While there are certainly a number of legitimate uses of cryptocurrency, it can be difficult to tell if the opportunity or partnership you’re considering is one of those uses or if it’s fraudulent. Engaging in any sort of fraudulent behavior, even if it’s simply by association through a partnership or vendor contract, can result in being fined or penalized in some way. 

 

The best way to avoid this is to always do your legal and financial due diligence, further enhanced by due diligence investigations of key actors and business enterprises, whether it’s when hiring an executive, forging a partnership, contracting with a vendor, or acquiring another business. Infortal has years of experience in deep dive due diligence investigations and is here to help. We have the resources, including resources in 160 countries, that enable us to gather detailed information about individuals and businesses to help you make an informed decision. Reach out today to learn more. 

 

Top Geopolitical Risks for 2023: An Infortal Perspective

Some geopolitical risks remain for years, even decades, while others may seem to come and go within a few months. Typically, though, even these risks have built up for years. Those who pay attention to signs of geopolitical turmoil can recognize where issues are likely to arise. Infortal’s experts in this area have put together a list of the top geopolitical risks for 2023 in order to best advise our clients. 

 

If you’re considering purchasing businesses in other countries, contracting with international vendors, or expanding your business globally, here are some of the risks you need to know about. We’ve organized them into five different regions. Of course, these are only some of the major geopolitical risks for 2023. If you’re going to do any business in another country, you want to make certain you understand all of the local and regional risks as well as these major global ones. You’ll want to reach out to Infortal to discuss these local risks and for a full analysis of any potential business partners or acquisitions.

 

Middle East and Africa

 

The Middle East does tend to be a fairly volatile area. Numerous geopolitical risks have occurred in the area, including the Gulf War in the early 1990s. In 2023, one of the biggest risks in the area is in Iran. Protests have been occurring in the country since July of 2021. These protests occurred due to several reasons. Initially, the protests were over water shortages, but after the government responded with severe brutality, the protests shifted to focus more on overthrowing the government. 

 

Towards the end of 2022 and in 2023, protests have focused on the death of Mahsa Amini, a woman who had been arrested for allegedly wearing her hijab in an improper manner. She was killed while in police custody. Since then, the Iranian government has restricted internet use, especially social media, and retaliated with violence towards the protestors. 

 

Saudi Arabia is also a source of some geopolitical tension. The Biden administration had asked the country to increase oil production to balance out the oil that was being boycotted from Russia due to the war in Ukraine. However, Saudi Arabia and OPEC declined to do so. At the same time, China and Saudi Arabia have become closer trade partners, and the country has been purchasing a good amount of oil from the Middle East. In return, Saudi Arabia has purchased weapons from China that the U.S. has been unwilling to supply. While Saudi leaders state that they believe they can help bridge the gap between the U.S. and China, tensions remain high.

 

Latin America

 

Latin America has gone through several political regime changes, with more to come. In 2023, Argentina, Guatemala, and Paraguay will hold general elections. Mexico will hold several state elections, while Ecuador has a referendum on amending the country’s constitution. With these and other elections in Panama, Haiti, Peru, Dominican Republic, and Venezuela that could impact leadership in those countries going forward, it’s safe to say that the political stability of Latin America as a whole is no longer as certain as it once was. 

 

In several countries, including Cuba and Nicaragua, authoritarian dictatorships have ruled for years. Others, such as El Salvador, appear to be moving in this direction. Other countries, such as Honduras and Haiti, are fairly unstable. Acquiring a business in these countries could result in great financial loss should things destabilize further. Suppliers and manufacturers working in these countries could find it difficult to ship products, leading to delays that could affect your deadlines. 

 

While the political instability and other concerns should give you pause when considering some countries of Latin America, others continue to offer great investment opportunities. You will want to do your due diligence before signing any contracts, though.

 

Europe 

 

While much of the concern in Europe has focused on the war in the Ukraine, there are other concerns that you need to be aware of. Leaving Russia and Ukraine as its own separate issue, Europe is facing some other riots and shortages. In France, for example, protests against President Macron and his administration’s policies began in January of 2023 and, as of May 2023, continue. 

 

The main cause of the riots is Macron’s attempt to overhaul the French pension system. As part of this overhaul, he wants to raise the age of retirement to 64, up two years from the current age of 62. Workers are especially angry with his decision due to the way it was implemented: Macron used a specific part of the French constitution to implement the change without any type of vote by the National Assembly. Companies doing business in France right now must be prepared for labor strikes. 

 

In addition to this instability, other issues plague Europe. An energy shortage, partially caused by sanctions against Russia, are beginning to cause issues. While not as bad as predicted, oil and natural gas shortages are still a concern, especially since Saudi Arabia has declined to increase production. Without cheap Russian natural gas, costs to consumers have increased, with many people in the EU seeing their electricity costs increase. In 2022, the energy inflation rate hit highs of over 40 percent. While this rate has been lower in 2023, it is still concerning. Doing business in countries with incredibly high energy costs is going to impact your bottom line. 

 

Russia and Ukraine

 

The war in Ukraine has made the entire region unstable. Many companies who were doing business in Ukraine have had to completely pull out of the country, losing their real estate as well as their inventory, equipment, and much more. The war is now in its second year, and its impact on the region and on the world continues to be significant. Many nations are continuing to support Ukraine in various ways. Many are also placing sanctions and other penalties on Russia in an attempt to use economic warfare to bring an end to the conflict.  

 

As we’ve already discussed, the sanctions on Russia have had a major impact on the energy industry, especially in regards to oil and natural gas. By refusing to purchase the cheaper Russian oil and natural gas, countries have faced shortages while also dealing with a rising energy crisis. While there are no immediate risks of Europe and other parts of the world running out of these resources, that could change if the war drags on for years. Long-term energy solutions need to be put in place now in order to avoid resource scarcity and economic hardships later.  

 

In addition to energy, there are other commodities that could become scarce. Russia and Ukraine are both major suppliers of wheat and other crops, which could result in food shortages in parts of the world. While markets are currently not disrupted and prices have adjusted, the longer the war goes on, the more likely that will change.

 

Asia

 

The geopolitical risks in Asia tend to surround Russia and China. China, in particular, is a risky place to do business due to Xi Jinping’s regime. His administration is considered unrivaled, but that brings with it a number of risks. China has a major impact on the global economy, and one misstep by the country’s leadership could greatly impact the world. Because Xi’s administration has worked to take control of the economy, the country is somewhat volatile, and it’s hard to predict what could occur.

 

Of course, China is also recovering from COVID-19. In addition to taking its toll on the country, it also greatly impacted China’s relationship with the world because there are many who blame China for the pandemic. This has driven some anti-Chinese sentiment in other countries and may have played a part in reinforcing China’s nationalist policies. 

 

While the relationship between the U.S. and China remains rocky, the country has strengthened its ties to Russia. Both countries distrust the U.S. and much of the West, and a meeting between Xi and Vladimir Putin in March of 2023 furthered that sentiment. While China has not gone so far as to openly give any support to the Russia-Ukraine war, that could change. Backdoor deals may also be taking place. Should China decide to fully support Russia, the U.S. and other countries could place new sanctions on China. This would affect many businesses that have Chinese suppliers or use Chinese manufacturers. 

 

What Can You Do About Geopolitical Risks?

 

Dealing with geopolitical risks is something every business must do. While you can’t change the political stability of a country or impact the war in Ukraine, you can understand what risks you’re taking on when you merge or acquire a company or contract with an international vendor. By working with Infortal to learn more about the risks involved with specific regions or countries, you can make an informed decision and reduce the risks your company takes on. We have the resources and experience to highlight the risks you’ll face as well as any suspicious behavior the company you plan to acquire has done in the past or that a potential vendor engages in. 

 

To learn more about how Infortal can help you avoid geopolitical risks, contact us today.

Spotlight on FCPA Violations – Q1 2023

Spotlight on FCPA Violations

 

Foreign Corrupt Practice Act (FCPA) enforcements are picking up at the start of 2023 after a slow-down due to Covid-19 lockdowns which made it more difficult for the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) to pursue prosecutions. The first quarter of 2023 sees two companies receiving FCPA enforcement actions totaling $19 million in settlements from Rio Tinto plc. and Flutter Entertainment.

The DOJ also announced new expectations for corporate compliance departments, enhanced penalties, and the broadening of industries and bad actors it will target with FCPA and “FCPA-related charges.” 

The 2022 Goodwin report noted the DOJ is now pursuing recipients of bribes in addition to their bribers, using “money laundering theories to charge foreign officials who are not themselves subject to the FCPA.” According to the report, the increased number of “FCPA-related” charges will include such malfeasant activities, such as wire fraud, money laundering, false statement, Tax violations, and Travel Act violations, “in addition to, or sometimes instead of, FCPA charges.”

The end of 2022 and the beginning of 2023, saw the DOJ announce further policy changes with  Deputy Attorney General Lisa Monaco’s Monaco Memo and Principal Deputy Assistant Attorney General Nicole M. Argentieri’s March special keynote speech followed by Assistant Attorney General Kenneth Polite’s  supplementary details on these changes. Highlights, include:

These new policies, while justifiable, increase the burden on companies that might have difficulty enforcing these added foreign and domestic compliance expectations around privacy issues and laws with regard to BYOD devices and “clawback” policies. Recouping promised or earned compensation may also face legal challenges abroad.

Consequences for FCPA violations on both the individual and enterprise level

Bribery Violations/per violation

 

Accounting Violations/per violation

Other Possible non-Monetary Consequences

       – Certifications by Chief Executive Officers (CEO) and Chief Compliance Officers (CCO)

 

These are basic guidelines. There may be additional penalties that could include: injunctions, forfeiture of associated profits, forfeiture of assets, suspension (or in some instances banning) from doing business with the government, and jailtime. Unlisted costs are loss to reputation, effects on company and staff performance, and future revenue.

First Quarter 2023 FCPA Highlights

Now is the time for companies to reevaluate their compliance programs. The importance of a robust and holistic compliance program is vital to protect a company from malfeasance, identify bad actors, and to mitigate business risks.

A healthy compliance and risk management program comprises integrating internal risk management and due diligence practices. These include: regular due diligence investigations (Tier III) on all new board members and executives—a deeper dive than standard background checks—along with conducting comprehensive due diligence on business partners, contractors, and supply chain vendors. Executive due diligence should also be exercised prior to new executive hires and importantly any Mergers and Acquisitions (M&A) proceeding. 

In creating the most successful risk mitigation program and having the most reliable and accurate due diligence investigation reports, your company needs to partner with an investigative firm with worldwide reach and resources that specializes in these areas, and is able to provide not just data, but actionable recommendations™ on how to mitigate the various risks you may be facing.

Anticipatory measures and identifying business risks are a best practice every business should implement in partnership with a risk management firm whose expertise includes deep due diligence investigations both nationally and globally.

Find out more by visiting Infortal.

 

The Costs of Skipping Due Diligence: Understanding the Potential Consequences for Your Business

When hiring a new executive, considering a merger, purchasing another company, or even contracting a vendor, you need to know who you’re about to be working with. Hiring, merging, or acquiring an executive or business blindly can lead to many problems. That’s where the due diligence process comes into play. By doing your due diligence, you can make an informed decision with the full understanding of what risks you’re taking on. Without doing due diligence, you’re leaving yourself open to many different problems.

 

Many people fail to fully grasp what due diligence is or why it’s so important. It’s more than doing a quick search of public records or verifying what someone has written on a resume. It’s a deep dive into their background and their history. Due diligence can reveal everything from faked credentials and offensive public statements to embezzlement and bribery.

 

It also takes a lot of time and resources to do, which is why many companies either skip due diligence or only do some light digging. When you partner with Infortal, we take on the task of doing due diligence. We will provide you with the information you need to know what risks you’ll assume. 

 

Is doing due diligence into every single executive hire, acquisition, and potential partnership really necessary? It is if you want to avoid the potential consequences that can come with hiring the wrong person or working with the wrong company. Here are a few of the risks you’ll be opening your company up to if you skip the due diligence process.

 

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You Hire Someone Unqualified

 

Skipping executive due diligence can result in hiring someone who isn’t qualified to do the job. They may have not been completely honest about their education or job experience. Unfortunately, a number of businesses simply don’t check whether or not someone has the degrees they claim to have. Unfortunately, 32 percent (almost one-third) of American job hunters admitted that they have lied on their resumes. These lies include their years of experience and education. 

 

Some of these lies were made to hide the fact that they were fired from a previous job, while others stretched the truth about their experience or qualifications. Almost half (44%) lied about their education, while 27% lied about professional credentials. According to studies, 80% of those who lie on their resumes get job offers, and about a third of them are never caught. Even out of those who are, some faced only a reprimand. The people who are lying aren’t just aiming for low-level positions, either. Companies such as Wal-Mart, Sunbeam, and Yahoo have hired lying executives

 

Hiring someone who has lied about their qualifications can impact your company in several ways. First, they may not fully understand how to do the job they were hired to do. You could end up with a vice president who has no leadership skills or isn’t as familiar with industry standards as they claimed to be. You could bring someone into your C-suite who makes poor decisions while trying to cover up their lack of education. 

 

You Hire a Criminal

 

Even worse than hiring someone who doesn’t know what they’re doing is hiring someone who has a criminal background. Many companies assume that their standard background check will have revealed any criminal activity, but that’s not the case. While a background check or basic due diligence may highlight any convicted criminal activity in the United States, it’s not going to show you much else. 

 

Did the person engage in shady behavior but stayed just on the side of legality? Some criminals know how to work the system and are always careful to toe the line while still lining their own pockets. Others may have committed crimes in other countries. If you don’t check international court databases and other records, you may never know that someone was convicted of bribery, embezzlement, or even murder. 

 

Sometimes the crimes just haven’t been discovered yet. That was the case with Moderna’s now-infamous “one day CFO.” Their new CFO reported to work the same day his previous employer launched an investigation into some of his financial dealings and potential use of incentives. Had Moderna done their due diligence, they may have discovered that the investigation was coming. As it was, the mistake cost them $700,000 and made them look ridiculous. 

 

If you do hire one of these individuals, the chances that they’re going to continue their criminal activity is fairly high. While there may be a few who want to start over and live an honest life, it’s likely the criminal you’ve hired is going to start embezzling from your company or engaging in other immoral and illegal activities. They could drag other employees into their activities, and the end result could be catastrophic for your company. You could end up being fined or involved in multiple criminal court cases. One single person could destroy your business. 

 

Your Reputation Could Be Ruined

 

Along those same lines, hiring a criminal or someone who has a history of making embarrassing statements could greatly damage your company’s reputation. This has become more prevalent with social media, but that’s not the only way a new executive can damage your company’s reputation. Maybe they gave interviews years ago that didn’t age well. Perhaps they spearheaded practices at a company several decades ago that damaged the environment. They may have been caught up in a scandal. Even if that scandal was of a more personal nature, such as infidelity, it may still cast a bit of a shadow on your business.

 

All of those things will reflect poorly on your company. While people can change, bringing on anyone with a checkered past is a risk, even if they have disavowed their previous stance on something or worked hard to show they have changed. Is it worth doing damage control? If a potential new executive pushed for poor environmental practices in the early 80s, it won’t be as damaging as if they did in the 2000s. That may be a risk you can take on. However, someone who has made anti-LGBT+ comments in the past five years may be someone you want to avoid hiring.

 

Repairing your damaged reputation isn’t always easy. It could take years before customers and potential business partners view you in a positive light again. With the internet, missteps are always just a few clicks away, even if they happened decades ago. In the short-term, you’re likely to lose customers and may have deals fall through. If you survive this fallout, you’ll have to start rebuilding your reputation slowly and carefully.

 

Infortal-due-diligence

 

A Lack of Due Diligence Can Lead to Government Fines

 

Do you know what countries are currently under sanctions by the United States? If you don’t, you run the risk of partnering with a company from one of those countries. However, while doing a little digging will tell you what country a business operates in, it may not necessarily tell you where that business’s vendors and other partners are. For example, you could partner with a company in Germany. That company has a vendor located in Romania, and they import products from Belarus. That company in Belarus gets its raw materials from Russia, a country that faces sanctions from its war on Ukraine. Even though you’re not directly working with Russia or even the manufacturer that imports Russian materials, you can still be fined for breaking sanctions.

 

This is where due diligence in your supply chain is vital. It’s also why some companies skip this part of the process. It takes a lot of time and resources to thoroughly vet every supplier and manufacturer in your supply chain. However, the consequences of not doing so can be severe. In 2022 alone, the SEC had 462 enforcement actions against companies. The average fine was a little over $9 million dollars. Can your company afford that? Even if you can, it’s going to greatly damage your finances. 

 

You Could Purchase a Business with Problems

 

Forgoing doing your due diligence while merging or acquiring a business poses risks, too. You could purchase a company only to find that the previous board or owners concealed a number of issues from you. You may dive into the books only to find that the business isn’t as profitable as you were led to expect. You could also find that the brand has a negative history that now affects your company. 

 

If you’re merging, failing to do your due diligence can mean that some of the board members or executives who stay on have engaged in criminal activity before. You could be merging with a company that has accepted bribes, engaged in illegal hiring practices, or has been investigated by local authorities for any number of reasons. This is especially true with you’re looking to merge or acquire a business overseas. Few U.S. companies have the understanding needed to do a deep dive into companies or individuals in other countries. 

 

Infortal Will Help You Avoid the Consequences of Poor Due Diligence

 

If you’re preparing to hire a new executive, purchase a business, merge with another company, or contract with a new vendor, you need to be certain you know who you’re really working with and what risks you’re assuming. Infortal has years of experience in handling deep dive due diligence, including due diligence in other countries. To learn more about what we can do for you, contact us today. 

The Impact of Geopolitical Risk on Businesses

Geopolitical Risk on Businesses

 

Any business that deals with other businesses, including vendors, in other countries must be aware of the various geopolitical risks they’re opening themselves up to. While there are certainly many benefits to going global, there are also dangers that can, if not understood, result in the end of your company. The many different fines and other penalties you can incur from breaking sanctions, for example, can leave your company struggling to make ends meet. Even if you don’t face any type of immediate financial repercussions from these risks, they can damage your reputation. What customer is going to want to work with you if it comes out that some of your products were made by children in sweatshops?

 

These are just two examples of geopolitical risks and why you must know what your overseas partners and vendors are doing. The impact of these risks cannot be discounted. Before you start working with any other company in another country, you must do your due diligence on both the country and the company itself, and key executives on larger business deals. You even need to look into the company’s supply chain and other partners to make certain you’re not assuming risks there. 

 

It is important work, and is highly recommended if you want to fully understand the risks you’ll take on by partnering with or purchasing that company. This is where Infortal comes in. Our team has years of experience in analyzing geopolitical risks. We will put in the time to uncover these risks and provide you with the information you need to make a decision. In some cases, the risks may be well worth the rewards, but in others, they may not. To understand why you need to do your due diligence, let’s look at some of the ways geopolitical risks can impact your business.

 

Fines and Other Penalties

 

As already mentioned, your company can be fined for transactions that your vendors or other business partners in other countries are involved in. If you’re working with a business that is in a country that has been sanctioned by the United States, you can be fined by the U.S. government. If you don’t know what countries are currently sanctioned, you run the risk of doing business with one of them. Even if you’re not doing anything directly with businesses in that country, you can still be held accountable if one of your vendors is. This is why it’s vital that you do your due diligence not only on your direct partners but also on their suppliers. 

 

Also note that companies and individuals can be sanctioned or flagged in similar lists too. It’s not enough to know what countries have been sanctioned—you also need to look at these other lists. Remember that sanctions are not set in stone either. New sanctions can be introduced, old sanctions lifted, and current sanctions modified as political situations change. Up to date information is key. 

 

Violating sanctions can bring with it stiff penalties and fines. Companies do not need to be based in the U.S. to be sanctioned by the government, either. For example, the Godfrey Phillips India company, which is based in India, was fined in March of 2023 for violating North Korea sanctions. These violations occurred in 2017, but the paper trail showed the violations began two years earlier. Godfrey Phillips agreed to pay $332,500 for their violations. This is a good warning for anyone who has violated sanctions and assumed they got away with it because there were no immediate investigations or repercussions. The U.S. government may move slowly at times, but they are very diligent and take sanctions violations very seriously. 

 

Damage to Your Reputation

 

When you work with vendors or other businesses that engage in shady activities, it’s going to reflect poorly on your business. You may get pulled into a scandal that greatly damages your reputation. You could find that you’re working with vendors that engage in bribery, illegal mining practices, child labor, dangerous working conditions, or any number of adverse business practices. Simply associating with these companies may make customers reconsider buying products or services from you. You could also lose business partners and contracts. 

 

Some businesses take the time to look into the legal records of their vendors and business partners and others take unnecessary risks. A vendor could be bribing government officials and you may never know because they’ve never been taken to court. In other countries, such things are simply considered business as usual. For example, it’s not unusual for strikers to be arrested or fired in countries such as Turkey, Colombia, or the Philippines. Violence against these workers  often happens. Would you want your company’s name associated with such issues?

 

Unless you dig carefully into local media, you may never know one of your vendors was a part of anti-union activities like this. However, should someone find that information and bring it to light, your customers may decide to move their business to a competitor. Even if you cut ties with that vendor and apologize to your customers, the damage is already done. 

 

Uncovering these things takes time and knowledge. You have to know where to look and what to look for. Infortal’s team knows how to find this information and how to help you evaluate the risks to your business. 

 

Damage to and Loss of Assets

 

War and other instability is another geopolitical risk that can have a huge impact on your business. Your supply chain could be disrupted for weeks, months, or even years if the region becomes embroiled in a war, serious social upheaval, or terrorist activities. It’s also possible that your property in that country could be damaged. Businesses that had vendors, partners, or acquired businesses in Ukraine, for example, very likely suffered loss and damage during the Russian invasion of Ukraine that began in 2022. 

 

During terrorist activities, military operations, or outright war, trade routes are often disrupted. If the vendor in that country is your only source of certain products, it can affect your entire production line. You may no longer be able to assemble the products you sell without those parts. If the city where the manufacturing plant is located is bombed or occupied, it’s possible the entire building could be destroyed and your workers imprisoned or even killed. 

 

Wars can be unpredictable, but there are signs of risk that experts can identify. Often, these signs of instability are present for years or even decades before war actually breaks out. By knowing these signs and understanding how they combine with other geopolitical risks, it is possible to determine the likelihood of war or other military action. With this information, you can make an informed decision on whether you want to risk doing business in a region.

 

You May Lose Profits

 

Understanding the financial regulations of a country, especially when it comes to tax law, will have a huge impact on your business. While this may not be a geopolitical risk that’s on the same level as war, it is still something you need to consider. High taxation or regulations that force businesses to use specific materials or expensive manufacturing processes will affect your bottom line. You will need to take this into account when considering whether or not you want to work within a specific country or use vendors that do so. You may instead want to look at countries that are more business-friendly, which would be included in a geopolitical risk assessment.

 

Another thing to keep in mind is that heavy regulation and over-taxation are often indicators of social unrest. They can indicate that the government is putting too much pressure on businesses and on its citizens, pressure that can eventually lead to protests, strikes, and riots. Of course, the impact those will have on your business can be substantial. 

 

Why Work with Infortal to Understand Geopolitical Risks?

 

Before you make any business decision, you need to have the right information. Otherwise, you’re simply making a guess about good business strategy in a particular region or country. When it comes to geopolitical risks, there’s a great deal of information to gather and analyze. Without the right tools or the time to allocate to this task, you can never cover everything. You may not even be able to unearth the most helpful information.

 

These are areas Infortal specializes in. Our team has many years of experience in gathering data on these risks and analyzing them. We do more than just look at a country’s laws and their social situation. We look at their history, their relations with surrounding countries, and current political and financial pressures to determine what risks are involved in working with vendors or establishing a business there. 

 

We can also assist you with due diligence investigations on vendors from other countries. We will break down their supply chain and perform an analysis of each vendor used. This will highlight any sanctions violations or potential supply chain disruption. We will then assist you in weighing the different risks you would face so you can make the right decision for your business.

 

Infortal can do more than help you decide if you should purchase a business in another country or work with a specific vendor. We also do executive due diligence, M&A due diligence, reputation risk management, and geopolitical risk intelligence. Contact us today at 1-800-736-4999 to learn how we can help keep you with risks to your business.