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Financial crime is a worldwide problem that affects numerous sectors, but especially finance and gaming. With criminals using AI technology and complex money-laundering operations, the use of Enhanced Due Diligence (EDD) techniques is growing in both the public and private sector. In this article Expol’s Chief Executive Rob Kinrade, a former police detective, explains why it’s an essential tool in the fight against financial crime and why businesses in the Isle of Man where we’re based, and worldwide, may be at risk if they’re not using it.
For generations, organised crime gangs have used fake businesses and profiles to hide their activities – what’s different today is that technology makes it easier for them to hide in plain sight.
Criminals often have access to more funding and resources than some law enforcement or other agencies. That’s especially the case in scenarios where smaller jurisdictions are targeted by international crime syndicates. As a former police officer – and with 20+ years as a private sector investigator – I understand the scale of the challenge faced by law enforcement agencies and all other organisations with a responsibility to protect the public.
New threats
Cryptocurrencies, sham businesses with complicated structures to hide money-laundering, plus AI tech used to create ultra-convincing websites and fake IDs, all make it tough for even the most experienced investigators to separate the good guys from the villains. In December last year, the UK’s biggest ever ‘ponzi’ scheme was uncovered, and the directors behind it were ordered by the High Court to repay £400m. The company behind the fraud had been operating for over six years with a website that was open for all to see – and it took years of painstaking investigations by the Serious Fraud Office to bring it to court. In some other cases fraudulent businesses involve human trafficking and even modern slavery.
This context explains why EDD services are being used more frequently by public and private sector organisations.
EDD for businesses & employers
EDD is used for a wide range of purposes ranging from research about politically exposed persons, to checking company details ahead of takeovers. It’s the gold standard for risk mitigation for these and many other scenarios.
EDD, in conjunction with quality training to help managers and employees stay up to speed with the law and industry regulations, also has a crucial role to play in compliance. Similar ongoing training to enable employees to carry out their own due diligence checks is essential too. All leading jurisdictions with a focus on financial services have, understandably, strengthened legal frameworks in recent years to close loopholes that have been or could be exploited by criminals. For example, in the Isle of Man (where Expol is based) one measure to combat the latest threats are the proposals that have been put forward to amend the 2008 Proceeds of Crime Act to modernise laws to tackle the risks posed by cryptocurrencies and digital assets. These reforms are currently only at the public consultation phase, but similar trends can be seen in other jurisdictions, so it’s a good example to show the direction of travel which places even more responsibility on businesses to ensure compliance.
What is EDD?
It’s a much deeper level of background checking and, because it requires skills and experience that some public sector organisations and businesses don’t have in house, this work is often done by specialist firms such as Expol.
In broad terms, EDD means in-depth research using similar methods and techniques employed by businesses, but within the legal framework that applies to corporate investigators. However, for specialist EDD firms this framework allows a lot of information to be gathered, if you know where, how and what to look for. EDD can involve…
- Gathering very detailed information about a company or individual and their business activities
- Examining financial transactions to establish source of wealth or detect unusual or suspicious patterns
- Using online search tools to carry out ‘deep dive’ internet investigations
- ‘On the ground’ investigations in the jurisdiction being examined to gather information not otherwise available online (eg local media and certain Registries)
- Contacting key individuals, associations and organisations directly in that jurisdiction to obtain intelligence and check and verify facts
Can’t AI tools do this job without the need for expert EDD investigators?
No. AI is certainly a useful tool to search for and analyse information, but its sources of data are limited to what has been digitised and AI still needs a human to oversee and check information for accuracy and omissions. It’s true that an immense amount of information about organisations and individuals has been digitised, but there’s still a lot which isn’t available via the internet or off-net databases. For example, a digital search for a company may give the impression that it’s a bona fide business – but an experienced investigator’s involvement may tell a different story. This is where the skill of the experienced, well-trained and motivated investigator is crucial. It’s that sixth sense which tells you when something doesn’t add up, knowing where to look to dig a little deeper and who you can contact to verify whether those suspicions have innocent explanations or were justified because they’re corroborated by hard evidence. This last point is important because financial fraud often involves international networks which means that EDD investigators, such as Expol, also need trusted contacts they can go to who can do local, on the ground research anywhere in the world.
Summing up
In an era when businesses are counting every penny it’s understandable that some may think EDD checks is an area where they can make savings. However, it only takes one rogue to slip through the net for them to realise it was a costly false economy. A comparatively small investment in EDD at the outset can avoid huge financial and credibility headaches in the future. The immediate cost of crises that could have been avoided by better due diligence can be calculated by the sum of fines, legal fees and compensation payments. Long-term, the total cost of reputational damage is immeasurable, especially for businesses or international business centres where trust is hard to win and easy to lose.
Expol provide Enhanced Due Diligence investigations services to customers in the Isle of Man and worldwide. Please click here to find out more, or contact our team by emailing enquiries@expol.co.uk or calling +44 (0)1624 611190.
