Extreme Due Diligence for Immigrant Franchisees

Editor's note: This is a timely op-ed piece in light of U.S. Senate debate raging on about bill S.1348, the comprehensive immigration reform proposal. Targeting Immigrant Franchisees to Defraud The Frightened Extreme Due Diligence Required Whenever there is turmoil in the world, the most capable people look for someplace else to go where they and their families and their assets can be protected and nurtured. Historically, the United States is always at the top of everyone’s list when it comes to selecting a new home. We get the cream of the society when uncertainty compels exodus. We get the intellectuals, the professionals and the best of the business people. That makes me extremely proud. I love it that the United States enjoys the respect of foreign nationals in the context of sanctuary. I also derive enormous personal enjoyment at the diversity that exists here in Houston. That diversity is the direct result of a world in chaos. I can go into stores and hear fifty languages in fifteen minutes, as well as enjoy the food, music and other cultural richness of the people who are now my neighbors – literally my neighbors. To me that is a blessing. Since so much of what I do involves vetting small business investment opportunities for potential business buyers, I am in a position to observe pernicious patterns of nefarious dealings, especially by certain franchise companies. I started to see this back in the 1970s, when it was possible for someone from another country to get fast tracked to a Green Card and to US citizenship if they invested in a business here. Unscrupulous franchise companies deliberately marketed franchise offerings to potential immigrants with malignant intentions. The malignancy of the intentions took two main forms. First was the aggressive misrepresentation of the likelihood for success if the immigrants invested. These included every classic form of falsehood that almost everyone now knows about. Everything positive was overstated, and everything potentially recognizable as being a negative aspect of the investment was either denied or greatly understated and dismissed. Secondly, there were a number of franchise companies that were offering real investment opportunities that were qualitatively excellent, but the agreements were written so that once the immigrant franchisee achieved success, it was easy for the franchisor to find incidents that could be claimed to be breaches of the agreement on the part of the franchisee that allowed the franchisor to take the business away for little or no money simply by terminating the franchise. These were usually accompanied by threats that any resistance would result in the franchisee being reported to the immigration authorities as undesirables who engaged in dishonesty, and that they and their families could be deported, losing everything. I saw this with sufficient frequency to recognize that some franchise companies made it a point to target immigrants. Immigrants had money. Immigrants didn’t understand how the American legal system works. Immigrants could more easily be frightened and intimidated. I am seeing this again in epidemic proportions. The sharks are again thriving in immigrant rich target environments. Immigrants know less than any other category of potential franchise investors how to vet these so-called opportunities. They are, therefore, amongst the most defenseless and easy prey. One of the first due diligence issues to note in approaching one of these deals is the nationality/cultural affinity of the existing franchisee population, and also whether the franchisor’s principals are from the same culture as the majority of the franchisees. The notion that people are less likely cheat their own kind is utter stupidity. This cultural or national affinity profile is a huge red flag. It makes the traditional steps of franchise investment vetting much less reliable. Immigrants are much more fearful of telling any stranger anything that is not positive. They are accustomed to being enticed into betraying signs of disloyalty. Whenever someone is apparently trying to seek unflattering information, or check out the truthfulness of statements made, they instantly and instinctively smell a rat/sense a trap, and they clam up. Talking to immigrant franchisees as part of the due diligence in this kind of franchisee population is almost a waste of time. You have to have a sense of what sections of the UFOC, when read in light of that franchisor’s marketing and sales brochures and sales pitch on discovery day, are changed in their significance by the cultural affinity of the franchisee group. What it does most urgently is change the mix between what you do with what you can see and what you have to go and find that simply isn’t there amongst the readily available information sources. If you are not of the same culture/nationality as the majority of the franchisees, your risks go even higher, because you are really much more thought of as “fair game”. These franchisees wouldn’t come to the aid of each other in any crisis, and they certainly wouldn’t bestir themselves for the benefit of some outsider. This xenophobia obtains in so many cultures that it is a more extreme issue in vetting a potential franchise investment when your client is an immigrant and when your client is an American Anglo Saxon thinking of becoming a franchisee in a system heavily populated and possibly also owned by foreign nationals. That they may have become American citizens has no weight whatsoever in this context. This is a preview of a new tutorial that will appear next week on www.FranchiseRemedies.com.