We Get IT! Division of International Trade Due Diligence Resources Virginia Economic Development...

We Get IT!

Division of Division of International TradeInternational Trade

Due Diligence ResourcesDue Diligence Resources

Virginia Economic Virginia Economic Development PartnershipDevelopment Partnership

We Get IT!What is International Due Diligence?What is International Due Diligence?

Assess risk related to:

• Country

• Client/Buyer

• Bank/Finance

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Verifying Country RiskVerifying Country Risk

What is the target market’s overall risk?What is the target market’s overall risk?

- - CorruptionCorruption

- Default risk on corporate payments- Default risk on corporate payments

- How a country's economic, financial, and - How a country's economic, financial, and political political outlook influences financial commitments outlook influences financial commitments

of local of local companiescompanies

- - Does the US have a trade embargo against Does the US have a trade embargo against the the country?country?

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Verifying Country RiskVerifying Country Risk

Resourceswww.coface-usa.com

www.countryrisk.com

www.trading-safely.com

www.globalcorruptionreport.org

www.worldbank.org

Embargoed Countries: www.treas.gov/offices/eotffc/ofac

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Verifying Client & Country RiskVerifying Client & Country Risk

1.1. Who Regulates US Exports? Who Regulates US Exports?US Dept of Commerce, Bureau of Industry & Security (BIS)

Export Administration Regulations

2.2. Who will receive your product? Who will receive your product?Make sure individual buyer, company, and/or country not prohibited

3.3. What will your product be used for? What will your product be used for?Dual-use goods

We Get IT!Verifying Client & Country RiskVerifying Client & Country Risk

Red Flags

•Customer or its address is similar to someone on a list•Product usage does not fit buyer’s business•Customer willing to pay cash for expensive items•Customer unfamiliar with product details•Routine installation or training denied by customer•Customer evasive regarding whether product is for domestic use, export, or re-export

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Check lists/databases:

• US government

• VEDP subscriptions

• Program partners

• Overseas trade managers

• Global Market Research program

Verifying Client & Country RiskVerifying Client & Country Risk

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Commerce Control List – Licensed Cargohttp://www.access.gpo.gov/bis/ear/ear_data.html

Denied Persons List – by namehttp://www.bis.doc.gov/dpl/thedeniallist.asp

Entity List – by country, then company name or addresshttp://www.access.gpo.gov/bis/ear/pdf/744spir.pdf

Unverified List – by namehttp://www.bis.doc.gov/Enforcement/UnverifiedList/unverified_parties.html

Debarred Persons – by namehttp://pmdtc.org/debar059.htm

Specially Designated Nationals & Blocked Persons – by namehttp://www.ustreas.gov/offices/enforcement/ofac/sdn/index.html

US Government Lists OnlineUS Government Lists Online

Or you can find them all conveniently located on ONE website! Or you can find them all conveniently located on ONE website! www.bis.doc.gov/ComplianceAndEnforcement/ListsToCheck.htm

We Get IT!Commerce Control ListCommerce Control List

We Get IT!Commerce Control List

We Get IT!Denied Persons ListDenied Persons List

We Get IT!Entity ListEntity List

We Get IT!Unverified ListUnverified List

We Get IT!Debarred PersonsDebarred Persons

We Get IT!Specially Designated Nationals & Blocked Specially Designated Nationals & Blocked

Persons ListPersons List

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**Note****Note**

Some freight forwarders offer to verify all

government lists for a specific client/buyer for a fee. Check with them for

rates and availability.

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Check lists/databases:

• US government

• VEDP subscriptions

• Program partners

• Overseas partners

• Global Market Research program

Verifying Client & Country RiskVerifying Client & Country Risk

We Get IT!VEDP SubscriptionsVEDP Subscriptions

• Hoovers International– a D&B Company– Limited financial information on some companies– by company name– 5.7 million entries

• Kompass– by company name– 1.9 M in 70 countries

• Interdata and Other Online Networks– by company name– self-reporting

There is no Dun & Bradstreet “Earth”, but some countries do have an equivalent. The above cover a lot but are incomplete…

We Get IT!Example from Hoovers International (a D&B Company)Example from Hoovers International (a D&B Company)

Also can include

Recent sales data, key players, major competitors

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Example from KompassExample from Kompass

Codes unique to Kompass help specify a company’s product(s)

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Check lists/databases:

• US government

• VEDP subscriptions

• Program partners

• Overseas partners

• Global Market Research program

Verifying Client & Country RiskVerifying Client & Country Risk

We Get IT!Program PartnersProgram Partners

• Access to other databases

• Foreign offices for reference

• Industry experience

• Specific partners to call– Law Firms– Merger & Acquisition Firms– Freight Forwarders, Customs Brokers, Logistics– Other Specialized Consultants

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Law FirmsWilliams MullenThomas McVey: tmcvey@williamsmullen.comThe Global Law Group, PLCJohn Huddle: jhuddle@TheGlobalLawGroup.comLeClair RyanBrian Buniva: bbuniva@leclairryan.comLasa, Monroig & VeveBrian Alperstein: balperstein@lmvlaw.com

Program PartnersProgram Partners

M & A FirmsVirtual Strategies, Inc.

John Dearing: jdearing@vsidc.comFOCUS Enterprises

Brad Fleisher: brad.fleisher@focusenterprises.com

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Forwarders, Customs Brokers, LogisticsUTi USAIan Strachan: istrachan@go2uti.comCV InternationalWayne Coleman: wcoleman@cvinternational.comAllegheny BrokerageJames Loux: jloux@acustomsbroker.com

Other Specialized ConsultantsChina Channel LtdBonnie Girard: info@chinachannellimited.comPiascik & Associates, CPATerri Noll: tnoll@piascik.com

Program PartnersProgram Partners

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VEDPProgram Partners

People Going Global

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Check lists/databases:

• US government

• VEDP subscriptions

• Program partners

• Overseas partners

• Global Market Research program

Verifying Client & Country RiskVerifying Client & Country Risk

We Get IT!Overseas Partners

One-on-One Export Marketing and Counseling

• Five VEDP offices worldwideChina, Japan, Mexico, Brazil

• Able to contact companies directly• May have experience with target company• Key to success = Craft specific questions• European Network in ten countries

Germany, UK, Ireland, Poland, Czech Republic, Russia, Spain, Sweden, Finland, Slovakia

We Get IT!Types of Questions

1. Identify & assist to explain packaging requirements

2. Identify a list of warehousing options

3. Physical site verification of a potential client

4. Provide contact information for key government officials

5. Investigate a specific potential client based on background information you provide

6. Summarize current trends related to a specific industry

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Check lists/databases:

• US government

• VEDP subscriptions

• Program partners

• Overseas partners

• Global Market Research program

Verifying Client & Country RiskVerifying Client & Country Risk

We Get IT!Global Market Research ProgramGlobal Market Research Program

• Dedicated, in-country market research, short TaTDedicated, in-country market research, short TaT• Identification, qualification, and survey of potential Identification, qualification, and survey of potential

distributors or end-usersdistributors or end-users• Competitor information on market share & pricingCompetitor information on market share & pricing• Best approaches in the target countryBest approaches in the target country• Local government rules for selling your product/serviceLocal government rules for selling your product/service

We Get IT!Other OrganizationsOther Organizations

• U.S. Department of Commerce– Intl. Company Profile ($200 - $600)

– http://www.export.gov/comm_svc/intl_co_profile.html

• American Chamber of Commerce– Foreign Affiliates - 94 AmChams in 82 countries

– http://www.uschamber.com/international

• Business & Trade Associations – List on MAP #4B for target market

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Resources

Verifying Client & Country RiskVerifying Client & Country Risk

Foreign company titles: www.export911.com/e911/export/export.htm#xForeign

Background checks:

www.marshusa.com

www.krollworldwide.com/services/screening/international/

www.dnb.com/us

www.icsworld.com/background_investigations_checks.asp

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Verifying Financial RiskVerifying Financial Risk

•Contracts with clients/buyers

•InCoTerms

•Foreign Currency Exchange

•Overseas banks

•Taxes

Great market-specific information found in MAP #7 & #8

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Verifying Financial RiskVerifying Financial Risk

Contracts

Are there common pitfalls to contracts in your target market?

Goal: a contract with opportunity for legal recourse and clearly defined roles for both parties

Are there legal issues surrounding representative or distributor agreements? Does the target market uphold intellectual property rights?

Goal: avoid an overseas relationship that leaves you open to liability

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Verifying Financial RiskVerifying Financial Risk

InCoTerms

Universal set of rules for conducting international trade

Exporter communicates InCoTerm details before sale

Goal: negotiate with client/buyer for the least risky InCoTerms for the sale

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Verifying Financial RiskVerifying Financial Risk

InCoTermsEx Works (EXW): Title, transportation, and insurance risks pass to buyer at

seller’s door

Free on Board (FOB): Risks pass to buyer once delivered onboard ship by seller

Cost & Freight (CFR): Same as FOB +transportation costs

Cost, Insurance & Freight (CIF): Same as CFR +insurance costs

Delivered Duty Unpaid (DDU): Risks pass to buyer when seller delivers goods at buyer’s point of entry

Delivery Duty Paid (DDP): Risks pass to buyer when seller delivers goods at buyer’s point of entry and cleared for import

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Where does risk transfer from seller to buyer with common InCoTerms?

ExWorks Free on Board

Deliver Duty

Unpaid

Deliver Duty Paid

Cost & Freight = FOB + transport costs

Cost, Insurance & Freight = FOB + transport & insurance costs

Verifying Financial RiskVerifying Financial Risk

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Where do transport costs transfer from seller to buyer with common InCoTerms?

ExWorks Free on

Board

Cost & Freight

Cost, Insurance & Freight

Delivery Duty

Unpaid

Delivery Duty Paid

Verifying Financial RiskVerifying Financial Risk

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What are some InCoTerms preferred by exporters?What are some InCoTerms preferred by exporters?

1. CIP (Carriage and Insurance Paid)1. CIP (Carriage and Insurance Paid)seller obligated to provide insurance coverage and charge buyer for itseller obligated to provide insurance coverage and charge buyer for it

2. CPT (Carriage Paid To…insert destination)2. CPT (Carriage Paid To…insert destination)ideal for container shipments, no insurance requiredideal for container shipments, no insurance required

3. CIF (Cost Insurance and Freight) 3. CIF (Cost Insurance and Freight) marine only, seller’s risk for goods condition ends when vessel is loaded, marine only, seller’s risk for goods condition ends when vessel is loaded, seller selects forwarder and carrier and insuranceseller selects forwarder and carrier and insurance

4. CFR (Cost and Freight…insert destination)4. CFR (Cost and Freight…insert destination)marine only, CIF without the insurance requirementmarine only, CIF without the insurance requirement

Verifying Financial RiskVerifying Financial Risk

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Verifying Financial RiskVerifying Financial Risk

Foreign Currency Exchange

Can USD circulate in the country? Does it ever leave?

Goal: make sure that your sale terms can be upheld in your target market, and get paid what you negotiated!

If you’re being paid in another currency, what is the exchange rate strength? What bank fees will be applied in the US to convert it?

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Verifying Financial RiskVerifying Financial Risk

Overseas Banks

Determine the banking structure of the target market. Is your client/buyer’s bank large or small?

•Risk receivable insurance

•US bank acceptance of wire transfer, intermediaries

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Verifying Financial RiskVerifying Financial Risk

Taxes

Do VAT or GST taxes apply? What kind of incentives are in place in the US to recover taxes?

•Frequent changes to tax law, incentives for recovery available

•Staff / offices overseas could lead to taxes spent overseas

•VEDP Program Partner: Piascik & Associates

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Verifying Financial RiskVerifying Financial Risk

Resources

www.ffiec.gov/bsa_aml_infobase/pages_manual/OLM_039.htm

www.worldbank.org

International Implications of the American Jobs Creation Act of 2004:

www.exportvirginia.org/newsletter/archive.asp#