Due Diligence is a commonly overlooked or underestimated tool, and a an essential plan of any business venture or financial entanglement, especially now in the golden age of fraud. One of my top resources for clients is Greg George of GTI Advisors, he shares some exeprt insight on the false comfort of commercially available background checks below. – Ike Devji
A comprehensive background investigation is a must do for principals involved with various business transactions, private investments, bringing in new partners, examining suppliers and reviewing key hires for your company. In spite of what many background screening companies across the country claim and try to sell you, there is no such thing as a “National Criminal Record Database Check for $29.95.”
Although our firm does enjoy privileged access when undertaking criminal investigations on behalf of corporate clients and working with law enforcement, the data compiled by the National Crime Information Computer (NCIC), maintained by the FBI, the Law Enforcement Information Network (LEIN), maintained by each individual state, and other government information assembled by law enforcement on criminal matters IS NOT AVAILABLE for sale to private industry, and such sale or unauthorized access would violate both federal and state law.
Best [research] methods for decision makers in the private sector to verify identity and achieve optimum results for criminal and civil record research in the U. S. include the following. A different criteria is applied when researching offshore issues, depending upon the country, the culture, and other specifics.
- Verify the subject’s social security number. This will show that the SSN was actually issued to this person as well as when and where it was issued.
- Hand-search county court records in each jurisdiction where the subject has resided based on his or her address history. The statistical example: 85% of all arrests and convictions occur in the county of residence. However, take care when selecting your research supplier – they should be able to provide thorough research coverage extending to all 3,227 (or so, at last count) state counties, independent cities and township or village corporations across the United States.
- Complete a federal criminal records search. A federal conviction or other information which indicates the subject may be or has been involved with federal authorities will not be revealed in a state county records check.
- Narrow an online search of the thousands of news feeds for an arrest hit, if found, verify disposition of charges at the court of proper jurisdiction.
- Become familiar with the Fair Credit Reporting Act – “FCRA”, available online prior to hiring employees. Any background research for employment purposes, (including obtaining a credit report), requires a separate stand-alone written release from the candidate. Most states have adopted the FCRA model in their respective legislation and several states also have further compliance mandates you need to follow. For due diligence review matters regarding private equity closings and other consumer initiated commercial transactions, the rules are a little different.
Specific purpose due diligence and employment background research can take on many forms, requiring various criteria to be addressed. My firm has provided research services ranging from basic criminal records reviews up through full field background investigations. Depending on the specific industry and employment position being filled (primarily corporate-level, financial, scientific, and other key staff positions), we may also recommend conducting additional interviews of past employers, business partners, neighbors, and other associates.
Suggested Baseline Criteria for Background Research on Individuals
Regarding due diligence research for investment, joint venture, merger, acquisition, other partnership opportunities or a key hire our recommended research criteria varies depending upon the specific industry. However, here is what I suggest as a common baseline to examine for all individuals:
- Identity verification.
- Criminal convictions.
- History of civil litigation as plaintiff or defendant.
- Bankruptcies, liens, judgments, and other adverse filings.
- Past business associations, employment verification and reference interviews.
- Verification of colleges and schools attended and highest degree awarded.
- Global financial intelligence network lookouts on persons and businesses; alert reporting data: U.S. Treasury Financial Crimes Enforcement Network, Interpol lookouts (Special attention to Asia, Russia, European Union) and comply with U.S. Patriot Act requirements.
- Check for U.S. Treasury Office of Foreign Asset Control sanctioned/disallowed persons and businesses BEFORE you commit to hiring or to any transaction, anywhere.
- Verification and review of regulatory sanctions and disciplinary actions regarding professional licensing.
- When an individual is associated with a company you’re considering doing business with, review the company’s standing, fictitious names found, various filings, and officers listed when doing research on private or closely held businesses as either a separate engagement or along with individuals under review. Utilize the same recommended research strategy for individuals regarding fraud alerts and research for other adverse filings the company may be involved with.
- Deep media research for articles about the individual or company
Deeper Research May Provide Undisclosed Information You Should Know About
Our firm recently provided due diligence research for a venture capital firm based in Southern Florida. During our engagement, we discovered one principal on the management team of the company seeking funding was a medical doctor under investigation by state licensing authorities regarding several complaints. This investigation may lead to disciplinary action or criminal charges against the doctor. The existence of the state investigation was not initially disclosed to the venture capital firm. If the venture capital firm had not ‘looked’ before they closed on the deal, an adverse outcome of the state review could have affected the credibility of the investment firm and become a formidable liability if investment money had already been given to this new medical technology company.
My experience with government services, particularly consulting on investigations and reviews of candidates applying for sensitive positions requiring U.S. Government security clearances, a clear dis-qualifier for most is when information is not voluntarily disclosed and discussed up front. People make mistakes; this does not mean they’re bad people. And, events do occur in life requiring each of us to face many challenges at times, such as a medical bankruptcy or other factors resulting in unforeseen financial distress.
Criteria for refusal of a candidate should not be automatic upon the disclosure/discovery of negative or potentially adverse information. A frank discussion with the candidate or potential business partner to review background information is certainly appropriate. If you choose to proceed after these discussions, remember – trust is important, but verify.
In addition to vetting people and companies before engaging, clients often consult with us to assist with composing appropriate language to include in funding term sheets that address “contingent upon outcome of background review” or other related stipulations. As part of our assistance, we urge our clients to at least seek an initial background reviews before committing much time, resources, and effort to their quest. All things considered, the costs of background research are nominal and analysis of the results provides a significant tool to support informed decisions.
Greg George is a senior advisor to professional services firms, CxO’s, investors, family office groups, and global banking center directors. Greg’s firm operates an intelligence fusion center available to private sectors providing investigative and operational due diligence analysis, and guidance addressing security operations, fraud, compliance, internal investigations and countering insider and espionage threats. Greg can be contacted by email: email@example.com or visit http://gti-advisors.com