Hidden Pitfalls: Due diligence gets to the bottom of blacklisted rebrands

Performing due diligence on the companies you choose to do business with is more important than ever. Like a Russian doll, many companies present one image externally, concealing their core brand identity and origin story under multiple layers of deception, completely invisible to the naked eye. What you see is often not what you get.

So who is really behind these companies? It’s hard to get to the bottom of these tangled structures, making it easier for banned or blacklisted brands to sidestep trade regulations and enter the US market under false pretense, masked by shiny new brand names, oftentimes even posing as US companies. Due diligence is the antidote to these shady maneuvers, removing the disguise to reveal the truth behind the covert rebrands. 

With President Biden cracking down on Anti-China trade practices, many Chinese companies have gone to great lengths to reinvent themselves, operating under different names, shareholders and even establishing U.S. headquarters to continue selling their goods and services on U.S. soil, while dodging the laws that govern foreign trade.

Take TikTok for example, the ever popular social app has set up U.S. headquarters and rebranded for the U.S. market in a years long attempt to separate itself from its Chinese parent company, ByteDance. However a new law threatens to ban TikTok despite these shifts. TikTok is claiming the U.S. government has violated their rights under the First Amendment and is suing. 

When it comes to the U.S. military, Chinese companies are working overtime to sidestep recent regulations banning the use of their products and services for military use. For example, American Lidar, a new company registered in Michigan in December, planned to set up shop in the American auto capital. However, their registration failed to list their China based parent company, Hesai Group who manufactures the lidars, a technology that uses sensors to detect objects surrounding a vehicle and has been used by the U.S. military. Hesai Group has been listed as a security concern in the U.S. for using this technology to illegally obtain sensitive data.

Just a month after setting up their Michigan manufacturing facility, the U.S. Defense Department outed Hesai, adding the company to the list of Chinese military entities operating in the U.S. This designation caused stocks to fall 30% the next day with no signs of bouncing back. While the classification from the Pentagon prohibits sales to the U.S. military, Hesai can continue to sell to automakers and other private companies. 

Hesai claims its American Lider subsidiary was merely a placeholder entity, that it has no ties to the Chinese government, and is not in fact a military affiliate. They are in the process of filing a lawsuit against the Defense Department hoping to be removed from the list. They currently net around one fifth of their profits from U.S. sales. 

Meanwhile in Massachusetts, China owned biotech company BGI Group, has taken similar steps to sidestep regulators and continue to profit in the American market. Their rebrand removed BGI from their previous name, BGI Americas, now operating under the guise of Innomics. The congressional select committee felt the name change was a deliberate move to avoid regulatory scrutiny and requested the Pentagon add Innomics to their Chinese military-entity list.

In response, BGI insists their subsidiaries cannot access Americans’ personal data and are not connected to the military. They maintain Innomics has no ties to the Chinese military, doesn’t operate in China, and therefore has no place on the Pentagon’s growing blacklist. 

In yet another example, the world's largest drone producer, SZ DJI Technology attempted to get ahead of a possible ban by landing a deal with American startup, Anzu Robotics, to sell their drones stateside. The Congressional ban, if passed, would prohibit the operation of DJI drones by both governments and consumers. U.S. officials fear the drones could be mining our data and contributing to human-rights injustices in China. According to DJI, these claims are false. 

However, DJI has gone to great lengths to continue selling its technology stateside despite the proposed bill. By licensing its tech for at least two drone models to Anzu Robotics, who manufacture the drones in Malaysia and allegedly store the data collected from the drones in the U.S., not Beijing, DJI is desperately attempting to side step U.S. sanctions. According to Representative Elise Stefanik, who is behind the proposed bill, “DJI and all of its shell companies will be held accountable.”

With more and more brands using deceptive tactics to hide everything from their country of origin and shareholders to delisted status and negligence of trade restrictions, it’s paramount you peel back the layers and get to the bottom line. The best way to shear these wolves in sheeps’ clothing? Dig beyond the puffery with due diligence and uncover who you’re really working with, so you can protect your business and prevent future mishaps.