The Evolution of private investigation

Read our article in the Cayman Financial Review Magazine, eversion 

Thirty years ago, he appeared in the movies as a dishevelled character wearing a trench coat, working out of a small, cluttered office on the wrong side of town, and under the cover of darkness, he was following and spying on the unsuspecting.

Today, many hours are spent in front of a computer screen, scouring the internet and databases for information that will reveal activities of people or companies purely by their on-line footprint. The modernisation of the private investigator and the services offered has created a highly specialised and diversified industry. 

The new private investigation firm will often brand itself as a risk management or consulting company and offer products with sexy names such as: competitive intelligence, investigative due diligence, computer forensics and regulatory compliance.

In addition to former law enforcement officers, the new companies will also employ professionals such as accountants, computer forensic specialists and analysts from a variety of former disciplines.

What is investigative due diligence
Over the past decade, one of the largest areas of growth has been in the area known as investigative due diligence (IDD). IDD is a term used for a number of concepts involving an investigation of a business or person prior to signing a contract or entering into a business relationship1.

Risks associated to potential mergers, investments, customer/vendor contracts can increase significantly and in some instances, have catastrophic results if there is a misrepresentation or non-disclosure of some material fact or if there is the potential for criminal or ethical problems that go undiscovered.

The rise of IDD services can be attributed to several factors. The events of 9/11 changed the way that most financial institutions do business. In addition to the mandate of the USA Patriot Act to “know your customer”, the evolution of global anti-money laundering and combating the financing of terrorism legislation has left a variety of regulated services seeking a way to meet their requirements and are utilising external resources.

Emerging markets such as Asia, South America and Eastern Europe present new investment opportunites but also a high level of regulatory and compliance risk. The Foreign Corrupt Practices Act (FCPA) in the United States and other similar anti-corruption legislation that has been introduced in numerous jurisdictions, both on and offshore, are causing companies and financial institutions to closely evaluate relationships they establish.

It is now critical that any contract being entered into with a foreign company be closely examined to ensure that any potential link to a foreign official, state owned enterprise or their executives be identified. Additionally, relationships that the foregin company has with other third parties, vendors or agents need to be understood.

According to the KMPG Global Anti-Bribery and Corruption Survey, 2011, one of the top three compliance challenges cited is the difficutly in performing effective due diligence on foreign agents.

There has also been numerous cases of fraudelent practices and third party neglience that have resulted in significant losses to investors and shareholders, such as Enron and the Madoff investment scandal.  An analysis of these types of events after the fact often reveals that a rigourous approach to due diligence may have prevented or at least negated some of the losses.

By using an established investigative company, you may be tapping into a network of services situated all over the world. Firms performing IDD will have established overseas relationships with other professionals in order to offer a wide range of services to suit their client needs.

Common due diligence request for OFC’s
Many jurisdiction have limited or no access to public records available online. Sometimes, the only way to get the information you need is to actually have a person on the ground in any particular country that can attend offices to physically gather the information for you.

Offshore Investigative Services, a private investigation firm located in the Cayman Islands, routinely fields requests for IDD from the United States, Panama, Mexico, Canada and the United Kingdom. The nature of the investigations include searching court records, background investigations on local individuals, identifying assets for litigation, process serving and conducting surveillance on individuals to establish relationships with other persons or businesses.

How to choose the best due diligence service
However, some things are better left to the experts. A lot of time and money can be wasted trying to find things through open source intelligence (OSINT), which is a fancy term for overt, publically available sources. The most obvious source of OSINT is the internet.

The internet has become a fantastic resource for information on just about anything, especially people and companies. Public database records that are stored online make research not only fast, but also affordable.

Depending on the jurisdiction, there are limitations on what type of information can be obtained and the results will often be reflective on the abilities of the researcher. Unless a person has had some specific exposure or training, most internet users have only fair to mediocre search abilities. A skilled researcher can not only improve results but also save time and be more cost-efficient.

Use a service that gives you a reasonable expectation of the results that can be achieved. A reputable company will tell you exactly what information can be obtained and what cannot. Be wary of companies that say they will look into it for you and get back to you without disclosing their fees up front.

Chances are they will come back after several days and tell you they were unsuccessful, and then expect a fee for time spent. Like any service arrangement, it is important to understand the cost of investigation up front and have it in writing.

A detailed proposal for IDD should include the scope and total cost of the investigation and the time frame for deliverables. The scope sets out whether the investigation will be limited to OSINT and likely just conducted within the office, or if it will include field work, such as visiting a particular address or location. Field work and subject surveillance are often the most costly aspects of any IDD.

The proposal should also stipulate if the investigation is to be non-intrusive and confidential; whereby the fact that an investigation is being conducted will not be revealed. An investigation with the consent or knowledge of the subject, such as an employer seeking employment history confirmation of a perspective employee, would not normally be considered confidential as the former employer would need to be contacted and asked about the subject individual.

The company you use should give you a formal report of their findings. The report should include exhibits such as relevant documentation and supporting information.

Whatever the reason for performing IDD, the need for intelligence on people or the companies you do buisness with has never been greater. The firms providing such services will also continue to evolve to meet the demand of their clients by providing  accurate and comprehensive information.
 

The insight provided by IDD will facilitate informed business decisions so that regulatory, compliance and reputational risks be effectively managed.

Endnotes:

1 Due Diligence From Wikipedia, the free encyclopedia; http://en.wikipedia.org/wiki/Due_diligence