U.S. private eyes are snooping in China
But they don't need a magnifying glass to spot a market ripe for plenty of profitable 'vetting' work for American and International companies.
NEW YORK (CNNMoney.com) - Not all U.S. companies are bemoaning the potential for fraud that comes with doing business in China. Corruption is a good thing for the growing number of private eye firms setting up shop in the Far East.
New York-based private investigations firm Fortress Global has been in China for less than two years but the region already accounts for up to 30 percent of the company's international business. Besides China, Fortress Global also has offices in South Africa, London and Canada.
"Many U.S. companies are looking to do business in the Far East, predominantly in China, and they're retaining our services to make sure that they won't lose money down the road," said Donald Leo, vice president of Fortress Global's operations in Asia.
Leo said the nature of the firm's investigative work in China typically pertains to intellectual property and copyright violations, as well as vetting local business partners for joint venture proposals.
A typical background check involves investigating for any record of criminal activity either in China or in the United States, said Leo. "We also see that there are no U.S. sanctions imposed against the local company, or even if the company was cited by the Federal Trade Commission for shipping violations in the past," Leo said.
Leo cites one Chinese firm that was claiming to be the Gallup organization, and conducting polls under that name. "We were hired to investigate and we took pictures of this office in Shanghai, spoke to the individuals who worked there and then took this information to the Chinese authorities. This office was eventually shut down."
Describing the "gray market," Leo explained that not all goods are counterfeit. "Suppose a U.S. brandowner licenses its brand to a Chinese manufacturer to produce 16,000 items. Once the quota is completed, this manufacturer can manufacturer a few thousand more pieces and sell in the local market without the approval of the U.S. company," he said. "So the product isn't fake but it's a violation of the licensing provision."
New York-based Kroll Inc., one of the largest global investigative and securities services firm, operates offices in three cities in China, including Beijing and Shanghai.
John Auerbach, Kroll's managing director of the greater China region, said Kroll entered China more than 10 years ago. Today, the company considers China to be one of the fastest growing markets for private eye firms.
"To do work like ours, it takes years to build sources and contacts," he said. "There are other American private eye companies who want to come to China now but they can't expect to hit the ground running."
Kroll is involved in two main categories of investigative work in China for its clients that span across such industries as retailing, manufacturing, consumer goods makers, financial services and technology firms.
"The pretransactional work for our international clients involves due diligence of Chinese joint venture partners," he said. "In China, it's common to see corruption at the senior executive ranks."
He also clarified that not all of Kroll's customers in China are international firms, adding that plenty of Chinese businesses are also seeking out private eyes.
Despite China's dedication to opening up its market to global competitors and embracing "free enterprise," Auberach said non-Chinese private eye firms do come under greater scrutiny. "But we spend a lot of time with the Chinese government explaining to them that we are providing transparency in business," he said. "Yes, this is a Communist country and the flow of information is controlled. We're extra careful to be law abiding to overcome any suspicions that we may be an intelligence gathering firm."
Fortress Global's Leo said China is starting to change its attitude regarding business improprieties.
"The Chinese authorities are more cooperative with us when we present evidence of clear patent infringements. However, there are areas that the Chinese government will protect. I'm sure if we were asked to investigate a military operation, we will be shut down immediately," said Leo. "You have to be smart when you're doing business in China. This is true whether you're dealing with the government or with local businesses."
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