How Corporate Due Diligence Can Keep You Out of Court

How Corporate Due Diligence Can Keep You Out of Court

criminal or civil court

Thorough due diligence will help protect you from bad businesses, bad people, and time-consuming, costly legal proceedings.

The backlog of civil cases across Canada is bringing the civil justice system to its already scuffed and battered knees. Unreasonable delays, increased costs, and tangled legal procedures are arguably tarnishing the very idea of justice, and bringing the system itself into disrepute. The pursuit of justice — the soul of why the system exists — is often obscured (and sometimes erased) by the fog of complexities that are inexorably associated with it.

Ontario Superior Court Justice Mary Vallee recently condemned the ever-increasing wait times for trial dates in Toronto civil courts as “shameful.” The ongoing delays create frustration and cynicism and a significant emotional strain for the participants. The cost and delays will only get worse until the system is changed.

During my law enforcement career I was exposed to frequent occurrences of people and businesses falling victim to bad investments, bad people or bad partnerships

During my law enforcement career I was exposed to frequent occurrences of people and businesses falling victim to bad investments, bad people or bad partnerships. The common thread in all these personal and financial tragedies was significant reputation damage, financial loss and embarrassment. Many came to my door hoping to make their matter “criminal” rather than civil, or just to seek some advice about how to proceed. The sad truth was that their options were limited. The circumstances were not of a criminal nature, and pursuing a civil case was not worth the cost, time and emotional strain.

The recurring theme is that most of these events were avoidable

The recurring theme is that most of these events were avoidable. It took my team of investigators no time (sometimes only minutes) to find red flags when looking at the facts of the alleged wrongdoing. We could quite easily identify suspicious personal or financial history, associations, misrepresentation, inconsistencies and questionable patterns of behavior. The important information found was not located in secretive police systems but in the publicly available databases all of us have access to if we know where to look and how to make the connections.

So why don’t people just look on the Internet themselves? Often they do and believe that a simple Google search will provide the necessary due diligence. Google is an unreliable tool for serious research as is social media to an untrained eye – a quick glance at a Facebook or LinkedIn account or someone’s website often doesn’t reveal much to a person who doesn’t understand what to look for.

What can a person do?

A background check that examines a couple of databases is incomplete and will leave you with a false sense of security

Avoid a lengthy and costly litigation process by establishing a sound due diligence process from the start. Hire a reputable investigator that actually investigates. Realize that there are no standards in the background check industry: the quality of service and experience of investigators is wildly variable.

Most investigation companies will use the words “background check” or “background investigations” to describe what they do; however, the end results may be insufficient or lacking the information needed to protect you. A background check that examines a couple of databases is incomplete and will leave you with a false sense of security. If you want the job done right, ensure you hire someone that has the skill set and infrastructure to access the necessary databases and properly analyze information.

To complete a thorough background investigation or due diligence process make sure your investigator incorporates the following areas as part of their research.

Confirmation of identity
Establishing identity is critical. Your investigator should be able to confirm the identity and address of the subject, establish residency, marital status or relationships, including family. Identity is a key component to authenticating the continuity of a person’s background and their activities. A name change, whether of a business or a person, may indicate that something is being hidden.

Social media and news media
Examining personal or business blogs, social media posts, and profiles are important aspects of a search. What type of information do they post and what kind of responses or exchanges are they getting from readers? Are there any local, national or international news articles referencing the investigation subject, their associations, or business? Do any of the articles warrant further follow-up?

Professional associations and history
Your investigator should establish continuity in the subject’s employment history, their associations with and identity of their employers. Are their representations consistent with this history compared with their current resume or public profile? Can their qualifications, adverse reports, omissions or misrepresentations be identified and verified?

Business profile and interests
Determine if the subject has any political affiliations, has made contributions to or has associations with profit or non-profit organizations. Does the subject sit on any boards, past or present? Verify if any associated entities have been subject to litigation, controversy or sanctions. Are there any bankruptcies or connections to foreign corporations?

A good asset search will start by determining if the subject owns real property including assets such as watercraft, aircraft or motor vehicles. Determine if business is being conducted by proxies or “nominees” where the subject has control of property but their name is not on title. Does the subject own shares, stocks or bonds in any publically traded company? Are any of the subject’s assets pledged as collateral for any other property or holding?

Criminal/civil disposition
Determine (if possible) if the subject has criminal convictions or pending criminal trials (both within Canada or elsewhere) that are relevant to the search. Examine the subject’s civil court history for all civil litigation, judgments or other filings.

Financial status
Are there any judgments, liens, penalties or regulatory assessments against the subject? Has the party filed for bankruptcy or bankruptcy protection? Does any information culled from the investigation support pending or actual grievances against the subject and does it have the potential to impact their financial status? Are there any relevant credit reports?

Regulatory issues
Determine if there are any associates or affiliates that have ever been involved in regulatory complaints. Does the subject hold any professional designations and if so have any disciplinary actions, complaints, fines or sanctions been registered against them?

Associations and patterns of behavior
A proper due diligence and background investigation provides a complete, more accurate depiction of the investigation subject. Skilled investigators will collate and connect relevant pieces of the information puzzle to help you, or your company, make informed decisions.

Investing significant capital, time and emotion into a business, partnership, employee, or even a relationship, is a potentially serious undertaking. Going into a personal or business relationship with blinders on can have devastating consequences. Taking the necessary steps to find information that will inform and protect, can minimize problems down the road and help you avoid the cost and stress of a courtroom.

About the Author

Pat Fogarty is a former organized crime investigator now leading Internet research and investigations at Fathom Research Group. Read more about Pat.