Sciaroni & Associates: Due Diligence in the ASEAN Region March 10, 2015


Bretton G. Sciaroni,
Senior Partner

One of the original foreign lawyers in Cambodia, Brett negotiated the first foreign investment in 1993 for a $60 million brewery. He continues to provide legal advice on numerous investment projects and is very active in the business community as Chairman of AmCham, International Business Chamber and the Co-Chair of the Working Group on Law, Tax and Governance, comprised of private sector and government members who resolve issues of concern to the business community. Brett is a member of the DC and American Bar Association.
E: [email protected]



Due Diligence in the ASEAN Region March 10, 2015

This article first appeared in the inaugural issue of ASEAN Forum Magazine on March 4, 2015

Due diligence is important for doing business anywhere in the world, whether it is in advanced or emerging economies.

But in the countries of Southeast Asia, it is of particular significance as many of the most dynamic economies are also the newest, and due diligence is typically more difficult. Due diligence is defined as the investigation or verification of information about a person or company with whom there is a prospect for doing business. It relates to a standard of care taken before entering into a business relationship.

The actual business relationship contemplated could be any number of things – a joint venture, a merger or acquisition, sub-contracting, agency, or simply trading. But a prudent businessperson always needs to know with whom he or she is dealing. In more advanced economies, due diligence is made easier with the existence of public records, annual reports, newspapers, credit agencies, etc.

However, in emerging economies, many of these potential sources of information are inadequate or, in some cases, non-existent. This situation, plus the relatively weak judicial system that exists in many emerging markets, make due diligence at the front end of a transaction all the more imperative.

The kind of public records that should be researched include commerce ministry (for company registration information), tax department, property or cadastral office, court records (to determine if there are current or past cases that could influence your business decision), the investment board, and, in the case where a specific license is required, various ministries that give licenses (such as mining, telecommunications, etc.). But the problem remains – sometimes the records are not easy to access, other times they are not publicly available so information provided by the potential business partner is not easy to verify. Annual reports are a great source of information, particularly if done by an accredited accounting firm.

But in many emerging economies, there is no requirement for such a record. In some countries, the only companies for which an annual report is required is a bank or insurance company. And for those countries that have a stock exchange, an annual report typically is a requirement for company listing.

However, there are a large number of corporate entities beyond publicly listed companies which will have no such requirement. In more advanced economies, newspapers also are a useful source of information. However, in many emerging markets, the quality and veracity of newspapers vary widely.

Also, even in this digital age, the ability to research the public press can prove to be impossible. Of course, even if information is gleaned from the public press, it needs to be verified as what is reported can be incomplete or inaccurate.

Given the level of difficulty of due diligence in the new economies, what should you do when contemplating a business relationship? First, various means listed above should be explored, to the extent that they can provide useful information.

Second, the prospective person or company should be able to provide information which, in turn, can be verified. Third, other agents can be hired to find out information.

Typically these could be private investigators, former journalists, law firms or others with investigative skills and longevity in the market place.

Finally, other long-standing members in the business community can be asked for anecdotal information about the prospective party.

The old adage that an ounce of prevention is worth a pound of cure is certainly applicable to due diligence in the emerging economies of the region.

An added measure of care at the beginning of business dealing can save you a great deal of pain later.

© Sciaroni & Associates 2015

Sciaroni & Associates is a leading legal and investment advisory firm serving Southeast Asia since 1993. Based in Phnom Penh, Cambodia, with offices in Vientiane, Laos and Yangon, Myanmar, we provide skilled counsel, knowledgeable business insights and experienced guidance to many of the world’s leading companies, governments, economic think tanks, global development investment funds to help maximize the value of our clients’ investments. For more information please visit or contact us at [email protected].