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Potential for Fraud in the "New Members"

 

by Tomasz Kozlowski,

AVRIO Poland

 

It is a cliché that the accession to the European Union of the new Member States will result in a significant enlargement of the common market. But it is certainly a fact of life that at the same time as the opportunities increase so the risks increase as well. The greater the common market the greater the opportunities for increasing business, for cross-border cooperation and for possibilities of making money there are, the greater the care that needs to be taken not to allow fraud to take its slice of the cake.

 

It is hoped that the enlargement of the common market will result in an increase of investments directed to the new Member States. The cross border business inevitably requires cooperation between partners who have only very limited knowledge of the other contracting party. The business culture and access to information on the background of the other contracting party may be very different to what the investor is used to in his home country. In the fog of those differences fraudulent activity may go unnoticed.

 

It may often seem to the contracting parties that demanding too many formal securities would be a sign of lack of trust and may offend the other party, especially if dealing with a different culture. Certainly in the vast majority of cases the security provided will only be on paper and the investment will go on smoothly, with no need to activate the security.

 

However nobody would want to be the infamous exception, having paid the price for a friendly and informal relationship. Investments in foreign countries have the speciality of very often lacking the possibility of day-to-day control being exercised by every partner to the venture. It leaves the operational partner with freedom that may easily be abused if placed in the wrong hands.

 

Ensuring adequate research on the background of the contracting partners and careful structuring and division of powers and control in the new venture is surely the best way for achieving successful cooperation and the success of the venture. Yet it is often the case that while investing in other countries investors do not take the same approach as they would have in their domestic markets, partly because of the euphoria of entering new fields of gold.

 

Another very important aspect of the enlargement is the perception in the population of the new Member States that with their accession to the European Union the golden gates of paradise will be opened and they will all join the happy and rich family of countries where the streets are paved with gold. This perception of simple access to new and easy ways of making money may easily result in them being more vulnerable to criminals offering seemingly miraculous investment vehicles promising extremely high returns.

 

Enlargement of the common market will certainly bring about new opportunities and possibilities for business. However no matter how profitable the business may seem, nothing will replace common sense and proper advice on the structure of the new venture. Prevention has always been better than cure.