Unexpected Barriers to Due Diligence Investigations

Tight privacy laws, technology gaps, corruption and lack of documentation can all stand between investigators and the information they need.

Posted by Dawn Lomer in on November 8th, 2011

In the fight against corruption, background checks play a critical role. You need to know who you are doing business with to be sure they aren’t going to expose you to a bribery investigation as a consequence of your partnership. But sometimes background checks can be far more complicated than they should be, especially when your potential partners and associates are in foreign countries.

“You have to look at everyone you’re doing business with to make sure they’re not fronts for money launderers,” says John Twomey, Executive Vice President of the Kreller Group, an international investigations agency that specializes in global due diligence background checks, credit investigations and collection services.

Serious Consequences for Serious Crimes

“It comes back to the old KYC – know your customer,” says Twomey. “It’s expanded because the governments are seeing the level [of corruption] that goes on.” And the scope of corruption being uncovered is leading to the biggest crackdowns to date.

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“It’s gone beyond the old traditional oil companies in Nigeria and Russia, to everybody – to pharmaceutical companies, telecommunications, defense contractors, and the fines have gotten a lot bigger,” says Twomey.

The OECD, FCPA, UK Bribery Act, and CFPOA have all contributed to this crackdown, but Twomey feels the international pressure is only part of it and that governments are also complying out of a desire for fair trade and “because they want their people to be acting in a lawful, respectable manner across the world.”

But it is some of the countries that are most compliant when it comes to anti-corruption legislation that pose some of the biggest difficulties for an investigator doing thorough background checks.

Privacy Laws Block Information

Many of the countries that are difficult to do due diligence in are countries that you wouldn’t think, says Twomey. “Great Britain is extremely difficult. It’s illegal in Great Britain to get a criminal history on a person,” he says. “Germany has extremely strong privacy laws. It is very difficult to get information on people.”

Countries that score lower on the anti-corruption scales tend to have less official red tape, when it comes to gathering information on citizens. Privacy laws in some parts of Asia and Russia are much less robust than those in Europe and North America, says Twomey. And having investigators and local contacts in those countries makes it even more possible to gather detailed information on people being investigated.

“If you’re a company like me, that’s how you look at it. I have people on the ground in those countries who can find out things for me.”

“In England and Germany I’m getting usually third party [information]. But you always get reliable [information]. That’s why you have people there,” says Twomey. “You can’t rely on database information. In many cases, because of privacy laws, it won’t appear in the database.”

Limitations of Remote Searches

There’s another reason why international due diligence requires the presence of contacts in the country of the person or company being investigated. “In many places in the world the US doesn’t have a fantastic reputation,” says Twomey. “You can’t call from the US or e-mail from the US to the Middle East asking for a reference on somebody. They won’t answer you,” he says.

Technology has its limitations in due diligence investigations as well. “In some parts of the world we’re doing investigations in, technology is either compromised or doesn’t exist,” says Twomey. “If you’re in China and you’re looking up a criminal record, just because they guy doesn’t have a criminal record doesn’t mean he’s not a criminal. So you have to have somebody there digging at the local level to find out what the true reputation of this person is. And that’s why it’s so important to have people on the ground.”

Dawn Lomer
Dawn Lomer

Managing Editor

Dawn Lomer is the managing editor at i-Sight Software and a Certified Fraud Examiner (CFE). She writes about topics related to workplace investigations, ethics and compliance, data security and e-discovery, and hosts i-Sight webinars.