Background Investigationsg g
Tips and tools
ACFE, San Jose ChapterACFE, San Jose Chapter
Linda JusticeLinda Justice
Deloit...
Agenda
• Introduction
– Some of the common needs for backgroundSome of the common needs for background
investigations
• So...
I d iIntroduction
OverviewOverview
Background investigations can help in…
• Investigating occurrences of fraud
– Theft, embezzlement, whistleblower, bribery,...
What you will learn today
• What is the value of online research?
• What types of intelligence are there?What types of int...
S f hSources of research
What’s out there? What is it used for?What s out there? What is it used for?
Resources — Subscription databases
• Subscriber databases are essential
– Instant desktop access to extensive information ...
Resources — Permissible purpose
• Use of the proprietary databases is governed by applicable law,
including the Drivers’ P...
Overview — What can be found
• Litigation
– Civil and criminal litigation (county, state, and federal)Civil and criminal l...
Overview — What can be found (cont.)
• Media — What has already been reported?
– Newspapers, magazines, specialty trade an...
Other sources of value
• States’ Web sites (Secretary of State, Division of Corporations, or equivalent records)
– Corpora...
Other sources of value (cont.)
• Federal agency Web sites for regulatory records
– FINRA (securities)FINRA (securities)
– ...
Free Internet sources
• Office of Foreign Assets Control: www.ustreas.gov/offices/enforcement/ofac/
• NASD: http://pdpi.na...
Free Internet sources (cont.)
• http://www.virtualchase.com/people/public records.html
– A great site that lists hyperlink...
Caveats
Online research is a cost-effective and valuable first step but is not a
substitution for further in-depth investi...
Common misuses of online information
• Missing leads
• Not conducting follow-up researchNot conducting follow-up research
...
U.S. versus international investigations
• What are the major differences between U.S. and foreign public
records?
• Can a...
Reporting — Visual charts (i2)
Copyright © 2009 Deloitte Development LLC. All rights reserved.17
How Background
I i i h lInvestigations help…
Fraud investigationsFraud investigations
Fraud preventionp
Litigation support
Fraud investigations
Public record research can assist fraud investigations by uncovering…
• Undisclosed businesses of ind...
Preventing fraud — Due diligence
Who’s doing background checks and why bother?
• Companies are the people who run them — b...
Preventing fraud — Due diligence (cont.)
Key risk areas
• Reputation and risk profile of target company
How due diligence ...
Preventing fraud — Know Your Vendor (KYV)
• A high-level assessment of the background of a large number of
payment recipie...
Preventing fraud — Know Your Vendor (KYV) (cont.)
• Verify existence of vendor
– Identify corporate filings
– Identify Web...
How do background investigations assist the
litigation process?
• Background checks on opposing parties can reveal:
– Patt...
Q i dQuestions and answers
About DeloitteAbout Deloitte
Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, and its network o...
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10/15/2009 Meeting - Tools of The Trade (Background Checks)

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10/15/2009 Meeting - Tools of The Trade (Background Checks)

  1. 1. Background Investigationsg g Tips and tools ACFE, San Jose ChapterACFE, San Jose Chapter Linda JusticeLinda Justice Deloitte Financial Advisory Services LLP Business Intelligence Services October 15, 2009 These materials are for presentation purposes only, and are not intended to represent opinions or an authoritative position of Deloitte FAS LLP.
  2. 2. Agenda • Introduction – Some of the common needs for backgroundSome of the common needs for background investigations • Sources available for research – Permissible purpose considerationsPermissible purpose considerations – Common misuses/caveats – Domestic vs. International • How background investigations help:How background investigations help: – Fraud investigations – Fraud prevention – Litigation supportLitigation support • Q & A Copyright © 2009 Deloitte Development LLC. All rights reserved.1
  3. 3. I d iIntroduction OverviewOverview
  4. 4. Background investigations can help in… • Investigating occurrences of fraud – Theft, embezzlement, whistleblower, bribery, FCPA, AML, and other internalTheft, embezzlement, whistleblower, bribery, FCPA, AML, and other internal investigations – Conduct background investigations prior to conducting interviews – Help determine where a subject might be in the fraud trianglep j g g • Preventing fraud – Integrity/reputational due diligence (prior to mergers, acquisitions, forming joint ventures, forming partnerships, client/customer acceptance, investmentg targets, strategic alliance partners, channel partners, distributors, vendors, FCPA, and ITAR) – “Know Your Vendor” process • Litigation support – Witness location – Expert witness vetting Copyright © 2009 Deloitte Development LLC. All rights reserved.3 – Asset searches – Fact-finding outside of the discovery process
  5. 5. What you will learn today • What is the value of online research? • What types of intelligence are there?What types of intelligence are there? • What resources are available online — in the public domain — and how can they be utilized most effectively? • What if the subject is a foreign national or entity?• What if the subject is a foreign national or entity? • What are the limitations of online research? Copyright © 2009 Deloitte Development LLC. All rights reserved.4
  6. 6. S f hSources of research What’s out there? What is it used for?What s out there? What is it used for?
  7. 7. Resources — Subscription databases • Subscriber databases are essential – Instant desktop access to extensive information sourcesInstant desktop access to extensive information sources – Unique capabilities not available elsewhere – Easy way to quickly identify red flags – Cost-efficientCost efficient – Adds focus to additional investigative phases – Discreet • Examples of popular subscription databases:Examples of popular subscription databases: – LexisNexis – Westlaw – Dun & BradstreetDun & Bradstreet – Factiva – PACER – World-Check Copyright © 2009 Deloitte Development LLC. All rights reserved.6 World Check – Dialog
  8. 8. Resources — Permissible purpose • Use of the proprietary databases is governed by applicable law, including the Drivers’ Privacy Protection Act (DPPA) and related stateg y ( ) laws, and the Gramm-Leach-Bliley Act (GLBA) • The data regulated by the DPPA and the GLBA may be used only for the permissible uses listed in the selections by the database providers.p y p • If you do not have a permissible use, you will not be given access to that data. • FCRA — The data retrieved may not be used as a factor in establishingFCRA The data retrieved may not be used as a factor in establishing a consumer’s eligibility for credit, insurance, employment, or other purposes identified under the Fair Credit Reporting Act (FCRA). Copyright © 2009 Deloitte Development LLC. All rights reserved.7
  9. 9. Overview — What can be found • Litigation – Civil and criminal litigation (county, state, and federal)Civil and criminal litigation (county, state, and federal) – Bankruptcies – Reported legal decisions – Judgment filingsJudgment filings – Tax liens — federal and state – Financial Industry Regulatory Authority (FINRA) and other regulatory sanctions • Assets – Real property ownership records – Watercraft/Aircraft registrationate c a t/ c a t eg st at o – Motor vehicle registration – Stock ownership of 5% or greater in public entities – Undisclosed businesses/relatives that may own assets Copyright © 2009 Deloitte Development LLC. All rights reserved.8 y
  10. 10. Overview — What can be found (cont.) • Media — What has already been reported? – Newspapers, magazines, specialty trade and industry publications,Newspapers, magazines, specialty trade and industry publications, broadcasts, and wire transcripts • Business issues/reputation/relationships • Criminal problemsp • Adverse data • Litigation • History of fraudy • Property transactions • Published biographies – Unique Internet resourcesq • Local newspapers not available through pay services • International publications • Chat rooms Copyright © 2009 Deloitte Development LLC. All rights reserved.9
  11. 11. Other sources of value • States’ Web sites (Secretary of State, Division of Corporations, or equivalent records) – Corporations – Partnerships – DBAs • State Boards of Accountancy for licensing and disciplinary records (select states) • State Bar Associations for licensing and disciplinary records (select states)g p y ( ) • Medical licenses (select states) • Securities and Exchange Commission Web site – Proxies, 10Ks, and 10Qs C b i• Company web site • Google, Yahoo, chat rooms, and other Internet sources • Individual court Web sites (records vary by state) – Criminal records — federal state and local– Criminal records — federal, state, and local – Civil litigation — federal and state – Bankruptcy filings – Tax liens — federal and state J d fili Copyright © 2009 Deloitte Development LLC. All rights reserved.10 – Judgment filings
  12. 12. Other sources of value (cont.) • Federal agency Web sites for regulatory records – FINRA (securities)FINRA (securities) – EPA (environmental issues) – SEC (public companies’ filings) – OFAC (Specially Designated Nationals — SDN)OFAC (Specially Designated Nationals SDN) – Federal Trade Commission (consumer complaints and trade practices) – Federal Election Commission (political donations) • Internet sourcesInternet sources – Telephone and address directories – Business directories – Mapping toolsMapping tools Copyright © 2009 Deloitte Development LLC. All rights reserved.11
  13. 13. Free Internet sources • Office of Foreign Assets Control: www.ustreas.gov/offices/enforcement/ofac/ • NASD: http://pdpi.nasdr.comNASD: http://pdpi.nasdr.com • U.S. Dept. of the Treasury: www.occ.treas.gov • Health & Human Svcs — excluded individuals: http://oig.hhs.gov/fraud/exclusions.htmlp g g • http://www.thevault.com/ – Basic service is free, but additional services are fee based. You can monitor chat rooms for information regarding specific companies. • http://finance.yahoo.com/ – Free. You can monitor chat boards of many companies. Copyright © 2009 Deloitte Development LLC. All rights reserved.12
  14. 14. Free Internet sources (cont.) • http://www.virtualchase.com/people/public records.html – A great site that lists hyperlinks to a number of investigative searches you canA great site that lists hyperlinks to a number of investigative searches you can do. • www.diligizer.com – A board containing “information regarding the backgrounds of and/or theA board containing information regarding the backgrounds of and/or the experiences others have had with individuals/entities who/which have offered or are offering fraudulent investment transactions relating to unregistered private placements, high-yield investment opportunities, HYIPs, the buying d/ lli f t /b k i d i t t l j t fi iand/or selling of corporate/bank-issued instruments, loans, project financing transactions, or other fraudulent business practices to investors worldwide.” Copyright © 2009 Deloitte Development LLC. All rights reserved.13
  15. 15. Caveats Online research is a cost-effective and valuable first step but is not a substitution for further in-depth investigative efforts.p g • Availability, accuracy, and coverage of online information vary by source, and by state and jurisdiction – Online research should be supplemented by manual searchesOnline research should be supplemented by manual searches • Not all potentially material information is apparent in online sources – Nuances in data require investigative analysis Copyright © 2009 Deloitte Development LLC. All rights reserved.14
  16. 16. Common misuses of online information • Missing leads • Not conducting follow-up researchNot conducting follow-up research • Not recognizing patterns • Not recognizing significance of findings S hi “ i ” i h id i i i• Searching names “as is” without considering variations – (e.g., alternative spellings, common nicknames, and cultural differences) • Relying heavily on a single source • Misunderstanding content/jurisdictional deficiencies Copyright © 2009 Deloitte Development LLC. All rights reserved.15
  17. 17. U.S. versus international investigations • What are the major differences between U.S. and foreign public records? • Can a critical mass of intelligence be developed without readily accessible public records? • How do these differences affect investigative approaches?How do these differences affect investigative approaches? – Methodology – Cost – Timing– Timing Copyright © 2009 Deloitte Development LLC. All rights reserved.16
  18. 18. Reporting — Visual charts (i2) Copyright © 2009 Deloitte Development LLC. All rights reserved.17
  19. 19. How Background I i i h lInvestigations help… Fraud investigationsFraud investigations Fraud preventionp Litigation support
  20. 20. Fraud investigations Public record research can assist fraud investigations by uncovering… • Undisclosed businesses of individuals potentially involved in the schemeUndisclosed businesses of individuals potentially involved in the scheme • Previously unknown relationships between internal employees and outside vendor or customer • Patterns of criminal or similar legal problems• Patterns of criminal or similar legal problems • Subjects’ current legal or financial problems • “Ghost” employees on the payroll • Fictitious vendors • Discrepancies between income and lifestyle Copyright © 2009 Deloitte Development LLC. All rights reserved.19
  21. 21. Preventing fraud — Due diligence Who’s doing background checks and why bother? • Companies are the people who run them — background checks of keyCompanies are the people who run them background checks of key management of target entities/investment targets are a logical complement to legal and financial due diligence. • Background/reputational checks of individuals and entities have becomeBackground/reputational checks of individuals and entities have become predeal “best practice.” • These checks provide legal, reputational, and financial protection for clients/investors and give financial services firms an edge in the marketclients/investors, and give financial services firms an edge in the market. Copyright © 2009 Deloitte Development LLC. All rights reserved.20
  22. 22. Preventing fraud — Due diligence (cont.) Key risk areas • Reputation and risk profile of target company How due diligence can help • Investigative due diligence on managementReputation and risk profile of target company and key principals • Material misrepresentations/omissions • Current or past criminal, legal, or regulatory problems • Direct or indirect foreign government g g g team, shareholders, connected persons, and other parties of interest • Provide an overview of corporate history and development • Direct or indirect foreign government ownership interests • Political links and relationships with government officials • Business affiliations and known associates C fli t f i t t • Assess the subjects’ track record and reputation in current and past ventures • Seek to identify past regulatory, governance, or ethical issues of concern • Conflicts of interest • Macro risks inherent in a region or specific sector for cross-border transactions • Integrity and stability of the current government • Attitude of key public authorities to foreign • Country Risk Assessment to assess macro risks inherent in emerging markets investors • Possible changes in legislation or with local regulators that may impact operations in overseas markets • Adequacy, integrity, and efficiency of the Copyright © 2009 Deloitte Development LLC. All rights reserved.21 q y, g y, y judicial system
  23. 23. Preventing fraud — Know Your Vendor (KYV) • A high-level assessment of the background of a large number of payment recipients (“Vendors”), including suppliers, agents, distributors,p y p ( ), g pp , g , , and sales intermediaries • Aims to identify red flags, adverse information, conflicts of interest, and fictitious vendors by consulting external data sourcesy g • The process can apply to: – Existing vendors (in the context of a risk mitigation program or fraud/FCPA investigation).g ) – New vendors (as part of the onboarding process) Copyright © 2009 Deloitte Development LLC. All rights reserved.22
  24. 24. Preventing fraud — Know Your Vendor (KYV) (cont.) • Verify existence of vendor – Identify corporate filings – Identify Web site and its registrar – Compare addresses identified on Web site and in corporate databases against that in vendor file • Search PEPS and sanction list checks – Databases of Politically Exposed Persons (PEPS) and sanction and embargo lists such as the UNDatabases of Politically Exposed Persons (PEPS) and sanction and embargo lists, such as the UN Oil for Food Program, the Office of Foreign Assets Control, the United Kingdom HM Treasury, European Union, Office of the Superintendent of Financial Institutions, Financial Action Task Force, the Australian Department of Foreign Affairs and Trade, and others – Conduct adverse media search (in appropriate languages) in numerous publications to identify past issues of fraud, criminality, business conflicts, and other matters • Other “Red Flags” – Adverse Internet researchCivil litigation – Conduct civil litigation searches to check for lawsuits including past contract disputes fraud falseConduct civil litigation searches to check for lawsuits, including past contract disputes, fraud, false claims, etc.Criminal litigation – Conduct criminal litigation searches to check for criminal records, including mail or wire fraud, drug possession, Foreign Corrupt Practices Act violations, etc. – Bankruptcy filings Copyright © 2009 Deloitte Development LLC. All rights reserved.23 a uptcy gs – Judgment and lien filings
  25. 25. How do background investigations assist the litigation process? • Background checks on opposing parties can reveal: – Patterns of litigiousness Fi i l diffi lti litigation process? – Financial difficulties – Poor business track record (e.g., a history of mismanagement or bankrupting companies) – Undisclosed professional relationships that have impacted inventories, sales, or loans (in bankruptcy cases) Amount of assets if any (Is a judgment worth pursuing? Are there circumstances that might– Amount of assets, if any (Is a judgment worth pursuing? Are there circumstances that might affect solvency between pre- and post-litigation period of a bankruptcy?) – Contradictions or inconsistencies in claim • Asset searches Conduct prior to litigation to evaluate the value of proceeding– Conduct prior to litigation to evaluate the value of proceeding – Help collection on judgments • Background checks on opposing expert witnesses can uncover: – Conflicts of interest Prior contradictory testimonies– Prior, contradictory testimonies – Criminal records or other adverse findings • Investigation of the underlying facts of a lawsuit can help to: – Verify key information, as well as uncover additional leads Identify and locate other relevant parties to the litigation (e g witnesses former business associates Copyright © 2009 Deloitte Development LLC. All rights reserved.24 – Identify and locate other relevant parties to the litigation (e.g., witnesses, former business associates, or potential creditors)
  26. 26. Q i dQuestions and answers
  27. 27. About DeloitteAbout Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu and its member firms. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Copyright © 2009 Deloitte Development LLC. All rights reserved. Member of Deloitte Touche Tohmatsu
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