Due diligence in cross border transactions

Have you ever fallen victim of a schemed and failed cross-border transaction? This article sheds light on some of the things you need to know before getting involved in transaction that cuts across country’s boundaries, especially if you do not know or have a contact person to assist you on the other side. Whereas the phrase “due diligence” is a commonly used term in many business deals, many people fall victim of unsuspected and well-planned fraudulent scheme ending up losing huge sum of money, time and even resources. 

Due diligence is the investigation or exercise of care that a reasonable business or person is normally expected to take before entering into an agreement or contract with another party or act with a certain standard of care. It is expected of every party to a transaction to exercise some degree of diligence so as not to fall victim of fraud. Below are some of the things you might need to know in contacting personal or business due diligence more so when it comes to transaction that cuts across State’s boundaries.

• Request for registration/Incorporation documents of the other party to the transaction.
• Ask for Tax registration certificate and Tax compliance certificate.
• If the other party is in a regulated sector, as for permits or Licenses from the regulatory body.
• Contact an official search of the entity.
• Request for list of clients and contact person.
• Request for proof of address.
• Seek legal assistance from legal entities established in that other jurisdiction to authenticate all provided documents.

It is expected that a business entity in every jurisdiction must be registered in order to legally operate and conduct any business. For this reason, every entity that is capable of entering into a cross border transaction must be legally registered in its country of operation.

Meeting tax obligation is a must responsibility for any profit-making business entity, no entity intending to enter into a business should lack a tax registration certificate and tax compliance certificate. All legitimate business entities must at least provide valid tax registration certificate and Tax compliance certificate.

Upon registration of a business entity, especially those in regulated sector, there is some sort of permit of licenses that authorizes them to legally engage in business. These permits or Licenses may have been issued by county/local authorities, ministries, established independent authorities or specific Departments. And so, for a genuine business entity, it must have applied for and obtained such relevant permit or licence from the respective regulator.

It is also important to note that the existence of a certificate of incorporation or registration is not a conclusive fact that the business entity exists. One is required as part of due diligence process to contact an official search to establish whether the entity really exists, who manages the entity and whether it has any liability tagged on it.

Upon contacting an official search, the search outcome will reveal the directors/owners/shareholders and principal location of the entity, you are advised, if possible, to conduct a physical visit or instruct your attorney to visit and ascertain that the entity truly exists. And even request for proof of address inform of utility bill. This will go a long way to clear any doubt you may have about the entity.

Lastly, seek legal assistance. Your attorney may uncover that which you may not have thought of and save you from a loss billion.

At A.O.WANGA ADVOCATES we are happy to assist you in doing due diligence in Kenya.

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