Avoiding unpleasant surprises

Borrowers in default, a professor in no fewer than nine Chinese universities or a fake contractor being considered for a major contract – these and other types of schemes can be avoided using prior investigations, called due diligence. 


Some of our readers must remember this case, which, although it never reached the public or the courts, was much commented on locally: a Macau company had been lent USD400 million by a hedge fund which included at least two major banks. The recipient of the loan was well known locally but after the borrower defaulted on the loan, the investors only received 25c in the dollar. 

“The loan would never have been approved, if there had been any meaningful due diligence conducted,” states Norman MacKillop, founder and CEO of Diligence Macau, hired by the banks only in the final stage of the process; too late. “You would be surprised how few companies invest in due diligence before entering into contracts.” And as we saw, he is not just highlighting small to medium sized companies… 

“I recall an interesting case when a potential consultant company for a concessionaire claimed to have a major share-holder who was a professor in no fewer than nine Chinese universities,” Norman MacKillop tells Macau Business. “However, this didn’t hold up to scrutiny when we researched him online. A visit to one of the addresses in Guangzhou produced another surprise, when the so-called business consultancy office featured on the web site with photos of numerous employees sitting at their computer consuls, turned out to be a massage parlour.” 

These are just two of the many cases that went through the hands of MrMacKillop, over a lifetime dedicated to this little-known activity. 

His background as a police officer in Hong Kong (he served in the Royal Hong Kong Police for over 23 years), and barrister at law in England gave him the skills to be a specialist in corporate investigations for the casino industry in Macau for the past 14 years.  

He entered the casino industry in 2002 as senior inspector and legal advisor to the Alderney Gambling Control Commission in the British Channel Islands, where he advised on drafting laws and regulations for the internet gaming industry, and conducted pre-licensing international investigations and audits of whitelisted internet gaming sites. In 2005 he joined Venetian Macau as director of investigations. 

Although he intervenes in many corporate areas, he has remained connected to gambling ever since. 

He conducted research and gathered intelligence on the ground for the Macau chapter of the first comprehensive study into the casino junket industry (commissioned by the Singapore Department of Home Affairs), and developed a Corporate Investigations Department for Galaxy. 

He founded Diligence Macau in February 2018. “I lived in Macau, I liked it”.  

“Quickly exited on the first ferry to Hong Kong” 

Norman highlights the fact that the three concessions with licenses in USA (Wynn, Venetian Macau, MGM) are subject not only to Macau Laws and DICJ Casino Regulations but also USA federal and state laws, in particular the Nevada Gaming Board regulations. “These extra burdens have resulted in the USA concessionaires developing sophisticated Compliance and Investigation Departments, both in their home countries and in Macau. These departments deal with all manner of investigations.  Pre-employment background checks are a major part of their duties as is investigations into vendors and potential business partners to avoid infringing the law.” 

Norman MacKillop also emphasises the fact that, although not subject to USA laws and regulations, of the three local concessionaires, Melco’s investigation department deals with extremely complicated issues given that Melcooperates in Macau, Philippines, and Cyprus and is focussed on being awarded a licence in Japan. Galaxy on the other hand, despite being a huge corporation, has not followed the American model and has “a relatively small investigations department while SJM is the odd one out, with no dedicated investigations department.” 

“Diligence Macau is well placed to assist with these types of investigations, in particular when a more in-depth pre-employment background check is needed or checks on vendors in mainland China require local expertise and ‘boots on the ground’,” he adds. 

This is what happens with this case the founder of Diligence Macau tells us, involving a foreign company being considered for a major contract as a supplier and outfitter of toilet and bathrooms for a huge casino hotel project.  

“They had a beautiful web site with photos of their work in famous hotels around the world. Our staff are trained in examining web sites for authenticity and we quickly ascertained that the web site was newly built and had little traffic. Examination of the photos showed that they had been cut and pasted in from other on-line sites and showed work done not related to this company. A photograph of a marble quarry which they claimed to own in Italy was actually a photo of a quarry in Brazil,” Norman details.  

Their representatives were in Macau, “so an interview was arranged. When confronted with these and other anomalies, they put up a good show but quickly exited on the first ferry to Hong Kong. A few years later the same representatives were arrested in mainland China when they attempted to scam another company.” 


“China is particularly challenging”  

The cases reported so far relate only to local businesses, but the situation is aggravated when Western (or at least non-Chinese) companies enter the picture. 

“China is particularly challenging,” states Norman MacKillop. “In Hong Kong, Macau and many other jurisdictions we can easily obtain business registration documents, with ownership and directorship history since the company was founded.” 

It means outside China there are numerous resources to research the business reputation of the companies and their principals. “These resources are generally not available in mainland China or the few existing data bases are unreliable. Our mainland associates are experts in on-line research of mainland companies and individuals, to establish bona fides and business reputation, using their wide experience and local knowledge and if necessary, do site visits to verify addresses and the nature of the business conducted.” 


How to avoid being caught off guard  

A typical client, says Norman, would be a Portuguese business “eager to hook up with a Chinese business as a partner or manufacturer that they have found on Alibaba and started communicating directly with.” 

Negotiations have come to the point where they are considering a trip to China to sign a contract.  

At this point a key decision would be crucial: would they decide to invest in some due diligence or are they travelling without this backup? 

“Our Portuguese client typically gets led on by the scammers to visit a factory which they have no authority over. The scammers also scam the factory into acting as their representative to introduce foreign customers. The scammer over charges the Portuguese and also charges the factory owners for introducing the business,” he details.  

The contract will be signed between the Portuguese company and the scamcompany which has no assets and no authority over the actual manufacturer. “When things go wrong, the scammers disappear.” 

Using due diligence, “we were able to show the client that the company they were about to contract with had no jurisdiction over the product being manufactured, had no assets and the directors had previous records for fraud.”