We explore when a basic check on a foreign counterparty is insufficient, which factors require in-depth analysis, and how to make a decision on a transaction.
What is a foreign counterparty check and what are the different levels of checks
A comprehensive screening of a foreign counterparty is a thorough assessment of the company before entering into a transaction, taking into account its financial condition, ownership structure, business reputation, operational activities, and legal and sanctions risks.
To evaluate a foreign counterparty, four levels of verification can be distinguished.
Level 1. Basic check
Initial screening takes 15 minutes and more. At this stage, the company's registration, status, and basic information are verified. Globas online search and online report, and open sources can be used as sources of information. Based on the results, a decision is made on admission to the next level of verification or refusal.
Level 2. Standard check
Standard check takes around 2 hours. Tools at this stage may include: Globas online or offline reports, documents provided by the company, and open sources. It is necessary to verify the company's activities, shareholders, directors, address, history, documents, licenses, financial indicators, and links with other companies. This level is applied to transactions valued between $50,000 and $200,000.
Level 3. In-depth check
In-depth check takes from 1 day and is designed for high-risk transactions worth over $200,000. In addition to Globas reports, external sources can be used to conduct additional verification. The full chain of ownership and ultimate beneficiaries, negative information, financial stability, and business credibility are checked.
Level 4. Maximum check
Maximum check takes at least one week and is used for critical transactions and strategic partnerships valued over $1 million. In addition to all the tools from the previous levels, an on-site inspection and legal review are performed. The physical presence of an office or production facility must be verified, meetings with management, and a legal review of the contract are possible.
How to handle conflicting information about a foreign company
When checking a foreign counterparty, information from different sources may differ. Let's look at the types of conflicting information and how to handle it.
Discrepancies in basic data
Example: report lists one manager, but the company reports that the manager is someone else.
Example: report lists one manager, but the company reports that the manager is someone else.
What to do: check the official data and supporting documents, then request an explanation from the company. A possible reason for the discrepancy is that the manager could have changed recently, and the changes have not yet been reflected in the register.
Inconsistencies in financial performance
Example: company reports a turnover of $10 million, but its financial statements show a turnover of $3 million.
Example: company reports a turnover of $10 million, but its financial statements show a turnover of $3 million.
What to do: prioritize the audited financial statements, check the period and structure of the indicators, and then request a detailed explanation and supporting documents from the company.
Conflict between reputation and documents
Example: company's documents are clear, but negative reviews are found online.
Example: company's documents are clear, but negative reviews are found online.
What to do: check the authenticity of the reviews, determine if they are related to competitors, request a comment from the company, and, if possible, contact the authors of the reviews. Documentary evidence takes precedence, but confirmed negative information must be taken into account when evaluating a counterparty.
Inconsistency with stated activities
Example: company claims to be a manufacturer, but has no verified production licenses.
Example: company claims to be a manufacturer, but has no verified production licenses.
What to do: compare the declared activity with documents and other supporting information. Company statements must be supported by documents. If it is impossible to verify the stated activities, this should be considered an additional risk factor.
Categories of negative information
The nature of the information uncovered determines the decision-making algorithm for a transaction. For convenience, all negative information can be divided into four categories.
Category A. Critical negative information:
- active criminal case against the director or owners
- company or related parties bankruptcy
- inclusion on sanctions lists
- proven fraud
- revocation of licenses in regulated industries
- mass lawsuits - 10 or more at a time
Category B. Serious negative information:
- litigation as a defendant - more than 5 cases
- administrative violations with large fines
- adverse media
- links to problematic companies
- history of late payments
- tax disputes
Category C. Moderate negative information:
- isolated legal disputes - 1–2 cases
- minor administrative violations
- isolated customer complaints
- minor payment delays in the past
Category D. Minor negative information:
- routine litigation, such as debt collection from clients
- disputes resolved by amicable settlements
- archived negative information—more than five years ago, if the issue has already been resolved
Such information generally does not affect the decision.
Decision-making algorithm in the presence of negative information
Presence of negative information does not always mean that the transaction must be abandoned. Decision is made after a thorough assessment of the nature of the information, its reliability, and its impact on the counterparty's ability to fulfill its obligations.
Step 1. Classification
First, it is necessary to determine the category of negative information – A, B, C or D. If category A information is identified, a decision is made to refuse the transaction. If category B, C, or D information is identified, the next stage of the investigation is carried out.
Step 2. Contextualization
Next, it's necessary to assess the circumstances under which the problem arose:
- when did it occur—recently or a long time ago
- how often did it occur—systematically or sporadically
- what is the scale of the problem
- how was the situation resolved—in favor of the company, amicably, or against the company
- is the problem recurring or is it an isolated incident
Step 3. Verification
The information obtained must be verified:
- request an explanation from the company
- check documentary evidence
- cross-check with other sources
Step 4. Transaction impact assessment
After verification, it is necessary to determine:
- whether the negative information impacts the company's ability to fulfill the contract
- whether it increases the risk of default
- whether the identified problems are likely to recur
Step 5. Decision making
Transaction may be approved with special conditions if the negative information has been satisfactorily explained, does not affect the company's ability to fulfill the contract, is not a systemic problem, and the associated risks can be mitigated by contractual terms.
Transaction should be rejected if the information has not been explained or the explanation is unconvincing, the identified problem affects the company's ability to fulfill the contract, is systemic in nature, or the associated risks are too high.
If doubts persist after verification, the decision should be postponed and further verification should be carried out.
If risks can be controlled by contractual terms, the following can be used to minimize them:
- reduced advance payments
- bank guarantees or letters of credit
- stricter penalties
- mandatory inspection
- stage payment
- transaction insurance
How to use Globas online and offline reports to check a foreign company
Online reports allow you to quickly get information about a foreign company. Globas has information on more than 380 million companies from more than 220 countries and territories. Information is provided within 1–2 hours. Report includes information about credit limit and company's financial statements.
Offline report is intended for in-depth check of a foreign company. Data is provided in a unified format, allowing for a consistent assessment of cooperation risks. Globas works with over 50 partners across all continents to prepare offline reports. The verification process includes a mandatory analysis of media coverage and a check against sanctions lists.
Checking companies from the Middle East
For companies from Bahrain, the UAE, Oman, and Saudi Arabia, a Legal Risk Report can be ordered. It is prepared using data from official newspapers, court portals, and registration authorities.
For companies from Bahrain, the UAE, Oman, and Saudi Arabia, a Legal Risk Report can be ordered. It is prepared using data from official newspapers, court portals, and registration authorities.
The depth of the publication archive is:
- the UAE - since 2014
- Oman - since 2016
- Saudi Arabia - since 2017
- Bahrain - since 2018
Globas
Credit reports on foreign companies
Check foreign counterparties before entering into a deal and use Globas ready-made expert reports to assess risks.
FAQs:
• When is an in-depth check of a foreign company necessary?
An in-depth check is necessary if two risk factors are identified. One factor requires additional attention, while three or more indicate a critical level of risk. Risk factors include financial, corporate, operational, reputational and behavioural circumstances.
An in-depth check is necessary if two risk factors are identified. One factor requires additional attention, while three or more indicate a critical level of risk. Risk factors include financial, corporate, operational, reputational and behavioural circumstances.
• When should a transaction with a counterparty be abandoned?
A transaction should be abandoned if critical negative information is discovered, such as an active criminal case against the director or owners, bankruptcy of the company or related parties, inclusion on sanctions lists, proven fraud, license revocation in a regulated industry, or mass lawsuits. A transaction may also be abandoned if the negative information has not been convincingly explained, impacts the company's ability to fulfill the contract, is systemic, or the associated risks are too high.
A transaction should be abandoned if critical negative information is discovered, such as an active criminal case against the director or owners, bankruptcy of the company or related parties, inclusion on sanctions lists, proven fraud, license revocation in a regulated industry, or mass lawsuits. A transaction may also be abandoned if the negative information has not been convincingly explained, impacts the company's ability to fulfill the contract, is systemic, or the associated risks are too high.
• How do you handle conflicting information about a foreign counterparty?
It's necessary to establish the cause of the discrepancy, request an explanation from the company, and verify supporting documents. The information should be compared with data from other sources. Official data and documentary evidence take precedence.
It's necessary to establish the cause of the discrepancy, request an explanation from the company, and verify supporting documents. The information should be compared with data from other sources. Official data and documentary evidence take precedence.
• What's the difference between Globas online and offline reports?
Online report allows you to quickly obtain information about a foreign company: information is available on more than 380 million companies from more than 220 countries and territories, and can be obtained within 1–2 hours. Offline report is designed for in-depth check and includes company analysis, media and sanctions screening, and data obtained from over 50 partners across all continents.
Online report allows you to quickly obtain information about a foreign company: information is available on more than 380 million companies from more than 220 countries and territories, and can be obtained within 1–2 hours. Offline report is designed for in-depth check and includes company analysis, media and sanctions screening, and data obtained from over 50 partners across all continents.