There are 2 major reasons for a bank to use an outside investigation firm:
1) to comply with “Know-Your-Client” provisions
2) To ferret out and prevent bad loans
“Know-Your-Client” provisions while not mandated by law, are an essential way for banks to prevent themselves from being implicated in money laundering and approving bad loans.
Unfortunately, most banks cannot trace the source of funds that foreign investors want to deposit. Specialized investigation firms, however, have the resources and dedicated personnel to conduct advanced money tracking activities. Therefore, banks can use investigative services to ensure that they obtain thorough, accurate background information about their overseas clients, as well as about those in the United States.
As for bad loans, the services of an investigator are vital when an institution tries to collect its monies and is concerned about the debtor defaulting or when the bank has obtained a judgment for collection. The debtor may have filed for bankruptcy or may have threatened to do so, and hidden assets in an offshore “safe heaven”. Or he or she may have taken the loan with the premeditated idea of not repaying it. In either case, the ideal time to hire an investigator is during litigation, before the debtor has been able to move assets offshore.