This post is a special edition follow-up to our Russian Regional Focus post; it will focus on the use of due diligence indices to decrease the risk of doing business with foreign companies, with a specific focus on the Russian Federation.

In this increasingly interconnected global economy, businesses must practice particular vigilance when practicing or dealing in foreign economies. For example, a major red flag that should be on any firm’s radar is that of the shell company. These are exactly what they sound like – a hollow shell of an entity that does not actually have legitimate, active operations. Rather, they lie there being dormant, only to wake to serve the purposes of its creator.

These shells of companies are a prominent fraud and threat for businesses seeking to operate and trade in Russia. One of the prime tools at a company’s disposal to deter business dealings with shell firms is that of enhanced due diligence (EDD) indices. There are various indices available to businesses to aid in establishing an informed decision. Some indices also offer company-specific data for various countries; this would allow potential trading partners to learn about the unique environment that they might be operating within in addition to being able to learn about whether or not their foreign trading partner is a legitimate entity.

Some red flags for fraudulent activity are as follows:

– Director – is this a politically exposed person (PEP)? Are many companies registered using the same name multiple times? How often does the company change directors?

– Address – are various companies listed at the same address? If yes, this is a red flag for fraudulent business activity.

– Public business partners – does the Russian company have contracts or dealing with the public sector government? The existence of such contracts can lower a red flag.

Overall, it is absolutely critical to remain vigilant when conducting business with foreign companies of which little is initially known. Conducting EDD and monitoring for red flags is a crucial control process to mitigate the risk of involvement with illegitimate companies.