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Financial affairs are predicated on trust and fair dealing. As world economies continue to fluctuate, the temptation to falsify earnings, overvalue assets, and otherwise “cook the books” increases exponentially. Unregulated and misunderstood financial vehicles are breeding grounds for theft, misappropriation, and mismanagement. Relying on reputation, a referral, or a recommendation alone is no longer a sensible business strategy.
In this environment of increased scrutiny and concern, knowing who you are dealing with, what they do, and how they do it is paramount to prudent investment and hiring. It is critical to institute or expand your due diligence requirements to determine the true identity and underlying interests of any prospective employee, business agent, or associate your institution may hire or conduct business with.
For professionals in our field, last year’s breakout film,Parasite, was the perfect encapsulation of lessons to be learned from the poor verification of stories new hires might be spinning. A few well-placed questions and connections of the dots would have turned it into a rather short movie.
Reliance on mere “deal due diligence,” or “legal due diligence” is not sufficient — a key component of any due diligence process is assessing the individual parties behind the prospective companies, investments, or potential joint venture partners. To do this, the investigators performing the due diligence need to be skilled in knowing what to look for and the platforms they use must be deftly wielded. The increased use of AI-based technologies, which sharpen accuracy and efficiency, also allows for operators in the space to scale the reach of their work.
While the use of AI powered tools has radically altered the field, it is not a stand alone solution. Savvy investigators have a new powerful tool at their disposal but they know they can’t rely on it solely. Analysis and the sifting of false positives remain the purview of the human investigator. That said, we are on a new frontier in terms of investigations and surveillance, and those who don’t incorporate the new technology will be left behind.
Always know who you are dealing with
Whether it is an investment target or a business partner, when it comes to accepting a fresh party into your circle, the importance of proper due diligence cannot be overstated. The need to properly vet potential business partners is constantly reinforced yet inconsistently performed. This manifests in sporadic or partial investigating and failing to use the latest technologies available, like AI and machine learning.
The vetting process involves delving deeper into a potential partner’s individual background, beyond the financial or business aspects of a given deal. Vetting goes further than checking references and typically includes criminal background checks, civil litigation checks, verifying professional licenses, certifications, or degrees, and checking social media profiles. The latter has become popular in the past few years.
Why does vetting include checking social media?
Criminal background checks and verifying candidates’ information are necessary, of course, but what are organizations looking for in someone’s social media profile? Certainly not vacation pictures or toddlers’ antics. Rather, businesses typically look at social media profiles to shed light on several key nuances:
● The potential partner does, in fact, have a social media presence.
● The candidate does not post inappropriate content. This includes anything that is lewd, has to do with drugs or alcohol, discriminatory comments against any group of people, and information (good or bad) about their company. But this list is not exhaustive.
● The subject’s qualifications. Companies can easily look at a candidate’s social media profile and see their age, where they went to school, previous jobs, and more. Essentially, they can learn if the subject was telling the truth.
Reputation
Job applicants or partners are not going to provide bad references. Interfor frequently hears of cases in which upon the announcement of a new business venture, numerous previous counterparts in their industry come out of the woodwork recounting the horrible experiences they have had with this individual or company and the damage they caused, and exclaiming “had you just asked me first I would have warned you!”
Making discreet inquiries in and around a prospect’s professional circles is a good way to get the lay of the land. There are many artful ways of getting to this information (ask us about it sometime).
Due diligence saves time and money
Is due diligence worth all the effort? The answer is a resounding yes. Proper investigations into a company’s background end up saving time, money, potential reputational and financial damage, and a lot of disappointment. Here’s how:
● When you do not conduct due diligence, you are blindly entering into a business relationship fraught with unknown risk and potential exposure.
● When claims or qualifications turn out to be fake or when potential partners have histories replete with fraud and misrepresentation, it does not just reflect poorly on them, it reflects poorly on you. When prospective business and investment partners are properly investigated, there is a higher likelihood of success.
Interfor’s case files are replete with stories of clients dealing with the fallout from the implosion of a venture which could have been avoided with proper vetting. That is why we offer our clients the services of highly skilled investigators and fraud examiners who use sophisticated AI-based technology to assist in their research. Good companies can be run by bad people. You can avoid becoming a cautionary tale by taking a few extra steps just to be safe. It is worth the investment.
For additional resources and guidance, the Interfor team is here to help.