Case background
A multinational manufacturing company was seeking to expand its supply chain to meet growing demand. They identified a new vendor, located in a developing country, that could provide high-quality raw materials at competitive prices. However, given the complexities of international business and the potential risks associated with new partnerships, the manufacturing company decided to conduct enhanced due diligence before finalizing the agreement.
Our approach
Unlike standard due diligence, which focuses on basic financial and legal checks, enhanced due diligence digs deeper into the vendor’s operations, ownership structure, compliance history, and ethical practices. Our process included:
- Ownership Verification: Our team conducted a thorough investigation into the ownership structure of the Vendor, identifying any potential links to politically exposed persons or individuals with a history of corruption.
- Compliance and Legal Review: A detailed review of Vendor’s compliance with local and international regulations, including labour laws, environmental standards, and anti-corruption measures. This also included screening Vendor through the global sanction lists and offshore leaks database.
- Reputational Assessment: Analysis of local media, social media, and industry reports as well as discreet interviews to gauge the vendor’s reputation within the community and industry.
Key Findings
Our enhanced due diligence uncovered several critical issues:
- Labor Practices: Interviews reveal that the Vendor had substandard working conditions, including inadequate safety measures and evidence of underage labour in some subcontracted facilities in Bangladesh.
- Environmental Concerns: The investigation found that the Vendor was not fully compliant with local environmental regulations, with several instances of waste disposal violations.
- Ownership Red Flags: The ownership verification process identified that one of the major shareholders of the Vendor was a politically exposed person with a controversial history related to corruption in the region.
- Reputational Issues: The reputational assessment showed that the Vendor had been involved in several local disputes with communities over environmental and labour issues, which had not been widely reported outside the region.
Outcome
Based on the findings of the enhanced due diligence, the manufacturing company decided not to move forward with the Vendor. Instead, they chose to continue searching for a more compliant and ethically sound supplier, despite the cost advantages the Vendor initially offered.
