19-minute listen
Dan Harris, a founding member of the international law firm Harris Sliwoski, came on RiskWatch to discuss the Hezbollah exploding pager attack and how it can be a case study for what happens when you don’t vet your supply chain and conduct proper due diligence, especially when faced with glaring red flags.
At Harris Sliwoski, Dan represents companies doing business in emerging market countries. Dan writes and speaks extensively on international law, focusing on protecting foreign businesses in their overseas operations. He recently authored a blog post on his firm’s website using the recent Hezbollah exploding pager attack as a case study on the pitfalls of not vetting your suppliers, which was the topic of our discussion. You can get in touch with Dan here and read the blog post here.
The Hezbollah Incident: A Cautionary Tale
Hezbollah, a U.S.-designated-terrorist organization based out of Lebanon, made headlines recently when it fell victim to an elaborate scheme allegedly orchestrated by Mossad, Israel’s intelligence agency. The operation involved supplying Hezbollah with counterfeit explosive pagers through a complex network of shell companies that had dire consequences for the group.
Media reporting on how the scheme was executed revealed several seemingly obvious red flags that should have alerted Hezbollah that something was amiss. This is a cautionary tale as to what can happen when you don’t vet your supply chain:
The Red Flags:
- Complex Ownership & Shell Companies: Two of the shell companies allegedly involved in the scheme, BAC Consulting in Hungary and Apollo Systems in Taiwan, showed warning signs that should’ve caught Hezbollah’s attention. These included no physical manufacturing locations at addresses provided and media noting that a receptionist at the building where BAC Consulting allegedly had an office reported that no one had ever been present there.
- Suspicious Geography: The choice of Taiwan and Hungary, in particular, as sourcing locations for the manufacture of pagers, products not typically associated with these regions, should have been a red flag. Additionally, the Asian electronics market is rife with counterfeit goods and overly complex supply chains, making the parties involved in the sale of the pagers inherently high risk.
- Product Inconsistencies: One of the shell companies involved, Apollo Systems, advertised pagers with rechargeable lithium batteries, while the legitimate Gold Apollo uses AA batteries.
- Suspicious Individuals: Many behind these companies lacked relevant industry experience. Media reporting indicated that, when company officials were contacted for inquiry, most were completely unresponsive.
Lessons in International Due Diligence
A risk-based approach to due diligence is essential, especially in high-stakes transactions. The Hezbollah pagers explosion is a lesson in the pitfalls of not vetting your supply chain and what can happen when obvious red flags are ignored:
- Conduct Background Research: A simple Google search can reveal red flags, such as scam alerts or inconsistent information about a company’s history.
- Verify Physical Locations: Site visits are crucial, especially for significant orders. Ensuring a manufacturer exists and operates as claimed can prevent fraud and, in this instance, the lives of the group’s members.
- Examine Company Ownership: Understanding the backgrounds of those behind a company can give insight into its legitimacy. A lack of relevant experience or an untraceable history is a strong warning sign.
For those interested in exploring the topic further, Dan Harris has published a detailed article, and his bio is available on the Harris Sliwoski website.
And, for those interested in learning how Vcheck’s international due diligence supports supply chain vetting, contact us.
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