Nearly one third of worldwide corporate deals collapse or are drastically altered after background checks on potential new business partners uncover problems, according to research conducted by the Risk Advisory group, an investigations and security consultancy. The problems include companies and individuals having broken anti-corruption laws and, in the most extreme cases, having links with terrorism and other illegal activity.
Henry Pugh, head of business intelligence at The Risk Advisory Group, said: "Our research shows that there are real pitfalls for the unwary when it comes to doing deals, particularly in emerging markets but also in the UK. Companies risk both their profits and their good name if they deal with people and organisations they do not investigate thoroughly.
"Fortunately, more and more companies are recognising this threat, saving themselves and their shareholders from significant financial loss, awkward questions from regulators and reputational damage."
The study covered nearly 300 deals during 2003 and 2004 and the organisations involved in the study include leading multinational corporations and private equity investors.
The study found that 25% of deals in the UK were terminated or significantly modified as a result of information uncovered during due diligence.