A Guide for Full Field Background Checks

June 16, 2009 by ADMIN

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By Greg George, Managing Partner of GTI Advisors

Due Diligence – a complex term when you think about it as a total application or holistic approach to best protect the entire organization.

My educational and awareness efforts notwithstanding, what keeps clients awake at 2-am (and me when they call at 2:30) are growing concerns of inadequate oversight and checks and balances applied throughout their company.

The term due diligence is used by many to mean different things: analyzing financial risk, measuring empirical data toward some conclusion or null hypothesis, review of regulatory and compliance issues, vetting vendors and contractors, assessing safety, security and appropriate continuity planning, considering a key employment candidate or prospective new partner’s status, credentials and character from reported background information, product to market feasibility studies and revenue projections, confirming new technology does what it claims, reviewing Geo-Political research and threat analysis of a specific country or region before setting up shop and so on.

Each operational component encompassing the entire enterprise, and JV, M&A or investment planning along with other specific projects have their own team managers, focus, purpose, mission, rationale and ultimate concluding recommendations to present to decision makers…

But are they doing it right?

Regarding background research on principals prior to investment, joint venture, merger, acquisition, a new partnership opportunity; a key management, scientific or fiscal candidate prior to hiring, my recommended research criteria varies depending on the specific industry.

However, here is what I suggest as a common baseline that is comprehensive yet cost effective – a hedge that can save you much aggravation and money later:

Identity verification.
I-9/work visa status if Subject is a foreign national.
Education verification.
Arrest history and criminal convictions.
History of civil litigation as plaintiff or defendant.
Bankruptcies, liens, judgments and other adverse filings.
Past business associations, employment, and select financial transactions review.
Domestic and international banking and brokerage fraud alert research.
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, the Caribbean and the European Union.
U.S. Patriot Act requirements.
Routinely check all for sanctioned/disallowed persons and businesses (U.S. Treasury Office of Foreign Asset Control) BEFORE you commit to hiring or to any transactions, ANYWHERE ; there can be significant fines and criminal liability to haunt you later if the person or business is on this radar screen.
License verification with regulatory sanctions and disciplinary search.
Suspected securities violations that have been investigated (usually executive level).
Medicare and Medicaid fraud investigation activity (health and insurance industry folks).
Review of the company’s standing of their few last employers.
Full national media research review.

The Suggestions Above Present a Deeper Criteria Review Than Most Use and May Provide Undisclosed Information You Should Know About Before Making a Decision...

The comments below suggest a few best methods to verify identity and achieve optimum results for criminal and civil records research in the U.S. (note that a very different criterion is applied when researching offshore depending on the country, culture and other specific factors):

Verify the Subject’s social security number. This will show that the SSN was actually issued to this person as well as where and when it was issued.
Don’t exclusively rely on any database search, big mistake: Hand-search county court records in each jurisdiction where the Subject has resided based on his or her address history. Statistically speaking, 85% of all arrests and convictions occur in the county of residence. Take care when you’re selecting your research supplier and make sure they can cover all (at last count) 3,227 state counties, independent cities and township or village corporations across the United States.
Complete a federal records search. A federal civil case, criminal conviction or other information which may indicate the Subject has been involved with federal authorities will not be revealed in a state county records review.
Narrow a search of the thousands of news/media feeds for an arrest hit, then verify the information at the court in that jurisdiction (there could be other spooky things that pop up you should probably know about too).

It has been my experience for higher level management and sensitive positions, new partners, mergers, acquisitions, strategic alliances (especially when including offshore participants) or joint ventures, clients have reached out to objective independent experts to perform the background research required.

For most internal hiring, if you have a well trained HR Department your company should be just fine regarding analysis of the background data and recognition of certain flags that may require further research. Those responsible for screening and hiring should also be able to live and breathe the Fair Credit Reporting Act.

The Act is regulated by the Federal Trade Commission and there are many examples of requirements and guidance on the agency’s website.

An element of the Act most often overlooked by employers that can result in a violation is that any background research for employment purposes, including obtaining a credit report, requires a separate stand-alone signed release from the candidate.

Most states have adopted the FCRA model in their respective state legislation. For due diligence review matters regarding private equity closings and other consumer initiated commercial transactions, the rules are a little different.

Using the suggested criteria above, to do it right using an outside qualified firm (and I stress “qualified” – checking references and actually speaking with a few of their clients would be good here), your cost to research a person who has always lived in the United States should run $800-$1200 depending on how many different states/counties the person has resided.

And another note regarding your chosen supplier – please keep in mind there is no such thing as “a National Criminal Background Check for $49.95″ yet these companies, most all online, sell thousands of these searches each day leaving the client with a false sense of security and possible negligent hiring liabilities.

There are circumstances, especially for highly sensitive and executive positions, where clients require a full field background investigation which would include personal face to face interviews with past employers, associates, neighbors and so on.

These investigations can also include taking a look at relatives and full financial disclosures – pretty much the same guidelines used by the federal government for a candidate seeking a clearance level position. These costs would of course be higher.

I’ll leave researching hedge fund and other “fund” managers to a future discussion. This topic deserves a dedicated focus of how it should be done, before you decide to hand over a check, no matter who recommended the “investment opportunity.”

Greg George is Managing Partner of GTI Advisors; Threat Management Practice Group, a firm dedicated to protecting decision makers from the “dark side” since 1962. Greg works with clients to develop practices and strategies to best protect their organization including threat analysis, multi-disciplined due diligence review, and training. For more information, please visit www.gti-advisors.com or contact Greg: greg@gti-advisors.com

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