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Full Disclosure Required?

DILEMMA:

A foreign corporation, with substantial cash, wishes to purchase a company located in the United States.

The owner of the company has made it clear they do not want to sell to a buyer from this particular country.

A middle person in the United States knows both the potential foreign buyer and the owner of the company, and knows the wishes of both. In order to help broker the sale, it would be necessary for the buyer’s identity to remain hidden while the deal is processed. To facilitate this, the broker has identified a fourth party, another U.S. corporation, as the one that could actually make the purchase, passing through the funds from the true buyer and acting as a shell for purpose of the deal. This corporation has no knowledge of the particular business and would simply act as an intermediary, for a profit, to complete the deal. The seller would not know the real buyer.

Granted, this is not a full-disclosure deal, but everything else would be clear. The buyer and seller would both receive what they wanted at a fair price. And the broker and fourth party would both benefit as well. Is there an ethical problem here?

A Would-Be Broker

RESPONSE:

Thanks for writing. It’s not clear to me why the current owner of the business would not want to sell to someone from a “particular country.” Is this restriction based upon unfavorable currency exchange rates, legitimate patriotism, or concerns over national security? Or is racism or xenophobia the true underlying motivation?

In either case, setting up a shell company to launder the sale is deceptive, even if described as “non-full disclosure.” If we think about business in a broader sense, it is about more than economics (“a fair price”). Business is also about relationships and building a legacy. Within certain boundaries, someone who owns a business should be able to sell it to whomever he or she wishes. Even if the seller has unethical motivations (such as racism/xenophobia), I don’t think deceiving him or her into a sale is justifiable.

Kenman Wong
Professor of Ethics, School of Business and Economics
Seattle Pacific University

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