The Role of Due Diligence in the Sanctions against Russia

We speak with Colin Tansley, Managing Director at Intelect, about all things due diligence.

Firstly, would you please briefly explain what Due Diligence is?

Due Diligence is a process that should be undertaken to better understand the person, organisation, or business you are considering transacting with. Think of it as a risk management activity. It is an essential element of business and for those companies regulated for the purposes of money laundering, is fundamental to their compliance with legislation and good governance.

In my opinion, Due Diligence is an investigatory function and should be treated as such. A failure to conduct it appropriately leaves the business exposed to a range of issues including regulatory intervention, reputational damage and has been seen in the media many times, including court action.

When is Due Diligence most commonly used?

Companies that work in the financial services industry are well acquainted with Due Diligence. It is an obligation that they must undertake to ensure that funds or other assets they are receiving are not tainted from any connection to money laundering, tax evasion, criminality, terrorism, weapons of mass destruction or anything that may cause their organisation harm. However, there are other applications for it, mergers and takeovers are good examples.

What does the process for Due Diligence typically look like?

I always say when I train compliance officers that the depth of information obtained from the client or business is fundamental. So, the first stage in the process is collecting data from the subject, this can be referred to as KYC, or ‘Know Your Customer’, and it should be thorough. What I mean by that is things like full names, previous names, physical and email addresses, a certified full-colour image of an identity document and proof of address, such as a utility bill are the minimum requirements.

At that point, an initial assessment should be undertaken to identify any obvious exposure or issues. It might be that the customer lives or operates in a high-risk jurisdiction, or their business offers products and services that are beyond the tolerance of the organisation that is considering onboarding them.

To fully understand those risks is where Due Diligence can assist, and where people like me come in. It tends to be the case that I will be contacted and engaged directly by a client. For reasons of confidentiality, I always suggest that we sign a Non-Disclosure Agreement (NDA). Once the objectives and terms are agreed upon, I commence a desktop investigation where I will exploit online sources to gather information. I analyse what I find and subsequently provide a written report. It is for the client to then decide whether they wish to continue with the proposed business relationship.

What factors commonly complicate Due Diligence?

Typically, not obtaining the right information from the subject of the Due Diligence enquiry or, not enough of it. A failure to do so will invariably lead to both ineffectiveness and inefficiencies because the first thing that must be done is to verify what you have. If you are not in possession of the right data, you may well be looking for something that doesn’t exist, or worse still, end up putting a lot of effort into researching what turns out to be a false positive.

There are of course other factors that complicate the process.

In most cases, Due Diligence is conducted online, be that via open sources, subscription databases or a combination of the two. The Internet is awash with information, it has been described as ‘drinking from a firehose’. So, the sheer volumes of data, and being able to differentiate between good, bad, malicious, and misleading information is a key skill.

In my opinion, Due Diligence is an investigatory function and should be treated as such. A failure to conduct it appropriately leaves the business exposed to a range of issues including regulatory intervention, reputational damage and has been seen in the media many times, including court action.

Language is an area that can also cause problems. If you are an English speaker then you are in luck because that is the most popular language on the World Wide Web. Chinese and Russian sites are becoming increasingly popular though, so if you want to delve deeper you need reliable tools, or people, to help.

Some of the most complex issues are the verification of the source of funds and source of wealth. This is where you often have to be ethically creative when identifying sources to achieve your objective, social media is a prime example.

I think I also must mention the expectations of managers, many of whom employ staff to conduct these types of investigations, with little or no training. Conducting a few Google searches is not Due Diligence and certainly would not be sufficient to satisfy a regulator in the event of an issue arising.

What role has Due Diligence played in the recent sanctions against Russia?

A thorough Due Diligence investigation should go as far as to identify links between companies and individuals. One of the issues for anyone conducting Due Diligence in relation to the sanctions and Russia is finding those links. As a former police officer, I have always found it helpful when investigating, to try and think like the person I am researching. If I was a wealthy Russian and wanted to avoid sanctions, then I would hide behind layers of companies, people, or complex structures to obfuscate my involvement.

A good investigator will be looking for the clues, the patterns and sometimes the absence of certain information to make those connections. This takes knowledge, skills, and time. I think it is difficult for me to judge what the role of Due Diligence has played in recent sanctions against Russia at a global level. I can however tell you that I conducted a recent investigation that found links to Russian individuals and companies that were not obvious or evident. It was arduous and time-consuming, my worry is that things may be getting missed and that has implications at several levels.

What are some of the most interesting or challenging investigations Intelect Group has worked on recently?

I consider myself very lucky to have been involved in all manner of investigations, many of which have their own individual challenges. When I joined the police service in the early 1980s there was no Internet and you had to get out and speak to people. The world is very different now, information is online, and it can be created and removed in seconds. We have social media and online identities that sometimes bear no resemblance to the person behind the persona.

From my office, I can reach across the world, and I can access all manner of sources that cannot be compared to when I started my investigative career. That helps me with my passion for investigations and I am able to continue doing what I do because of the Internet.

Much of my work now involves Enhanced Due Diligence for financial institutions and Citizenship by Investment (CBI) programmes. This mostly entails researching High Net Worth and Ultra High Net Worth Individuals, some of whom do not want to be found or do their utmost to protect their online profiles.

For reasons of confidentiality, I must limit what I can share but there are a couple of recent cases.

One of my most challenging investigations has not actually been connected to Due Diligence at all. For five years now I have been helping a family who is desperate to trace their adult son who we believe to be in South America. The person concerned has a minimal online footprint and doesn’t appear to want to be found. The trail hasn’t gone completely cold, and I am hoping for a positive result very soon.

Another interesting case involved an organisation that needed to be able to better understand an individual who appeared reluctant to share information. He had almost thrown down a challenge and had told them: “I want to see what you can find about me”. The case was difficult for a host of reasons and took time but eventually, I discovered links to several companies, technology, and cryptocurrency. The subject was very surprised.

What elements of your job do you find the most rewarding? 

Providing answers for my clients has to be at the top of the list. When you get feedback that tells you your report was ‘insightful’, ‘really helpful’ or they tell you the service they got was ‘first class’ then you know you are adding value.

There are of course times when an investigation results in more questions than answers, but that, in my humble opinion, is a good thing, it shows that the enquiry has integrity and is not there just to tick boxes.

I do get out from behind my desk from time to time and train people in the techniques I use, something I really enjoy. I have been fortunate enough to travel all over the world to deliver Due Diligence Investigations training. Only today I had an email from a delegate asking a query about an online search string. She had attended a course in 2019 and added: ‘I still remember your course. Hand on heart it’s one of the best I ever had and definitely the most interactive.

 

For me, doing what I do is helping businesses protect themselves and ultimately keeping the world a safer place.

About Colin Tansley 

Colin Tansley is the Managing Director and founder of Intelect. He has an enviable background in investigations and intelligence from his work in the police service and private industry. A former senior police officer, he lives on the Isle of Man and works all over the world. 

He helps compliance officers and their companies with the provision of Due Diligence training, investigations, and risk management. His client base is broad but is predominantly in the financial services, legal and wealth management sectors. 

He is also a published author. His book ‘Mastering the Wolf’ charts his experiences in the armed forces, police, and private industry.

Website: www.intelect-group.com

Facebook:  https://www.facebook.com/IntelectG

 

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