Augury due diligence is required for some people.

The first person to email me the accurate answer to this question will get a 50% discount on a Business Plan Reality Check.

Charles F. Bacon, CEO & Keeper of the Vision

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Due Diligence, Inc.

by Guest Author Zafar I. Anjum, CEO, CRI Group

In the complex world of employee background screening, no two countries are alike. In the United States, investigators have a web of databases at their disposal and a vast network of local resources that provide a wealth of information at the mere click of a mouse.

The success of background investigations in the Middle East hinges not on data but on people. Here is how to understand the uniqueness of background work in the region, and how to select the right firm to perform backgrounds and find potential problems before you make decisions.

It’s a different world in the Middle East. Technology is limited in many parts of the region. Privacy legislation varies from country to country and from jurisdiction to jurisdiction. Cultural differences impact the flow of information, and language barriers contribute to inaccurate reporting.

Instead of the typically database-driven investigations such as those that are conducted in the United States, background investigation professionals in the Middle East must conduct large parts of their investigations literally on foot, often traveling to remote regions to scour records and interview sources.

Simply put, if you’re looking for accurate, reliable information in the Middle East you need to turn to qualified and experienced professional sources that are familiar with the countries, cultures, terrain, languages, resources and – most of all – the laws that govern personal privacy. In this part of the world your contacts and resources are your greatest asset.

Discovering Hard-to-Find Facts in Hard-to-Reach Locations

The biggest challenge to conducting background investigations in the Middle East is collecting reliable information in the most efficient manner. This requires a well-trained and diverse group of professional investigators who are multilingual, multi-cultural, are familiar with those geographic regions, and can easily traverse the obstacles that often impede international investigations. Those obstacles include:

• Working with local customs offices;
• Complying with data protection laws and mandates;
• Knowledge level of local investigative researchers;
• Lack of centralized information resources and databases; and
• The proliferation of multicultural environments that are acutely influenced by locals who vastly differ in their approaches to investigative screening and public record searches, particularly with information collected via database sources.

To address these obstacles, successful background investigators in this part of the world are often required to work deep in the field, traveling to remote destinations to conduct interviews, develop resources and enlist local assistance to verify information.

Middle Eastern investigations regularly involve conducting a thorough review of local press records, using online and proprietary databases augmented by manual field research to locate the appropriate public records. This in-depth investigative approach is necessary to bring to light any instances of malfeasance or notable publicly-aired criticism.

Seasoned professionals also research all public records that are available within the respective government institutions such as a region’s trial courts, police and regulatory sources, and global sanctions lists.

The results of this level of investigative legwork is the collection of timely, well-documented and substantiated information that measures up to the high standards such as those typically required by U.S. firms.

Examples of Privacy Laws in the Middle East

While reputable screening firms in the United States comply closely with the Fair Credit Reporting Act to conduct domestic background investigations, foreign investigations are much more complex.

Middle East countries have no prohibitive legislation that governs the employment screening process. At the same time there is no cooperative legislation and regulation to support background screening services for employee due diligence. However industry professionals must adhere to strict data protection requirements to process consensually based personal information.

For instance in Dubai, local police departments provide “Good Conduct Certificates” for employees for immigration purposes, while the Dubai International Financial Centre (DIFC) awards a “Police Clearance” certificate for employee due diligence work.

In the United Arab Emirates, data protection laws permit investigators to process sensitive personal information such as criminal history data. DIFC licensed entities must maintain strict adherence to the region’s Data Protection Law of 2007 in order to fulfill ongoing DIFC licensed status. As in the United States, the procurement of personal data in this region – and any subsequent transfer of data outside of the DIFC – may only be attained with the written consent of the individual being investigated.

In compliance with the European Union Data Protection Directive, reputable background screening firms typically also adopt a strict stance on corporate self-monitoring by appointing a Data Protection Officer (DPO) whose primary responsibility is to conduct independent audits of our various information processing operations that handle customer and employee data. The DPO ensures that personal data is handled in accordance with all relevant data protection provisions covering online and offline data procurement while complying with local and regional regulations pertaining to individual privacy standards.

How to Locate and Partner with Reputable Screening Firms in the Middle East

So how does one go about securing a reputable international background screening firm in this region? The following checklist will be very helpful:

1. It is highly recommended that you begin by researching the database of expatriate security firms provided by the National Association of Professional Background Screeners (NAPBS). The list can be found at NAPBS Lookup.

2. Once you have selected a list of potential firms, ask each firm how they comply with local and regional laws governing individual privacy protection, and also ask what methods they utilize in protecting information.

3. Make sure each firm’s physical address is in the region they’re conducting investigations. If not, they could be simply outsourcing their cases to third parties.

4. Ask about the manner in which each firm conducts investigations. Stay away from firms that investigate exclusively through media searches.

5. Don’t settle for firms that say they specialize in providing checks of the International Terrorist Watch List and the OFAC watch list. Those lists are available online to anyone at no cost.

6. Stay away from firms that won’t supply you with the sources of the records they obtain. Also, be sure to ask how old the information is that they collect.

7. The truly reputable firms will combine in-depth field investigations with routine public records searches. Make sure each firm routinely does both.

8. Ask each firm which other companies use them, especially from your region of the world. Ask for references.

9. Service delivery is critical in foreign investigations. Ask about average turnaround times.

10. Once you have selected your provider(s), be sure to get commitments for delivery in advance of each investigation.

Conclusion

As the world economy shrinks, a partnership with a reputable international background screening service provider to conduct investigations abroad is essential for maintaining safe programs for your clients, whether it is for employment screening, mergers or acquisitions, technology licenses, or any important business decision. To ensure you are using the best providers available, a little investigating of your own will result in big benefits down the road.

Guest Author
Zafar I. Anjum, CFE, Chief Executive Officer
CRI Group
Email: Zafar I. Anjum
Website: CRI Group

CRI Group is a global supplier of investigative, forensic accounting, business due diligence and employee background screening services for some of the world's leading business organizations. A member of the Dubai International Financial Centre, CRI Group safeguards businesses by establishing the legal compliance, financial viability, and integrity levels of outside partners, suppliers and customers for clients. CRI Group maintains offices in Dubai, Islamabad, Lahore, Karachi, Manila, Riyadh and the United Kingdom.

Editor
Georgina K. Lee, Editor
Due Diligence, Inc. / The Due Diligence Group
Email: Georgina K. Lee
Websites: Due Diligence, Inc., The Due Diligence Group

Learning is not attained by chance. It must be sought for with ardor and attended to with diligence.

Abigail Adams, 1744 – 1818, Letter to John Quincy Adams, May 8, 1780

The liberties of our country, the freedom of our civil constitution are worth defending at all hazards; and it is our duty to defend them against all attacks. We have received them as a fair inheritance from our worthy ancestors: they purchased them for us with toil and danger and expense of treasure and blood, and transmitted them to us with care and diligence. It will bring an everlasting mark of infamy on the present generation, enlightened as it is, if we should suffer them to be wrested from us by violence without a struggle, or be cheated out of them by the artifices of false and designing men.

Samuel Adams, 1722 – 1803, Article published 1771

Everything yields to diligence.

Antiphanes, 408 to 334 BC

Diligence is a great teacher.

Arabian Proverb

Read not to contradict and confute; nor to believe and take for granted; nor to find talk and discourse; but to weigh and consider. Some books are to be tasted, others to be swallowed, and some few to be chewed and digested; that is, some books are to be read only in parts; others to be read but not curiously; and some few to be read wholly, and with diligence and attention.

Francis Bacon, 1561 – 1626, Essays Of Studies, 1625

But the idols of the Market Place are the most troublesome of all: idols which have crept into the understanding through their alliances with words and names. For men believe that their reason governs words. But words turn and twist the understanding. This it is that has rendered philosophy and the sciences inactive. Words are mostly cut to the common fashion and draw the distinctions which are most obvious to the common understanding. Whenever an understanding of greater acuteness or more diligent observation would alter those lines to suit the true distinctions of nature, words complain.

Francis Bacon, 1561 – 1626

Be a lamp unto yourself. Work out your liberation with diligence.

Buddha, c. 563 – 483 BC

Decay is inherent in all compounded things. Strive on with diligence.

Buddha, c. 563 – 483 BC

Every noble work is at first impossible.

Thomas Carlyle, 1795 – 1881

Diligence is the mother of good fortune, and idleness, its opposite, never brought a man to the goal of any of his best wishes.

Miguel De Cervantes, 1547 – 1616

A great fortune depends on luck, a small one on diligence.

Chinese Proverb

The expectations of life depend upon diligence; the mechanic that would perfect his work must first sharpen his tools.

Confucius, c. 551 - c. 479 BC

The gentleman prefers to be slow in word but diligent in action.

Confucius, c. 551 - c. 479 BC

But when great and ingenious artists behold their so inept performances, not undeservedly do they ridicule the blindness of such men; since sane judgment abhors nothing so much as a picture perpetrated with no technical knowledge, although with plenty of care and diligence. Now the sole reason why painters of this sort are not aware of their own error is that they have not learnt Geometry, without which no one can either be or become an absolute artist; but the blame for this should be laid upon their masters, who are themselves ignorant of this art.

Albrecht Derer, 1471 - 1528, The Art of Measurement, 1525.

I never could have done what I have done without the habits of punctuality, order, and diligence, without the determination to concentrate myself on one subject at a time.

Charles Dickens, 1812 – 1870

Our observation of nature must be diligent, our reflection profound, and our experiments exact. We rarely see these three means combined; and for this reason, creative geniuses are not common.

Denis Diderot, 1713 – 1784

I observe the physician with the same diligence as the disease.

John Donne, 1572 – 1631, Devotions upon Emergent Occasions, 1624, no. 6

Diligence overcomes difficulties, sloth makes them.

Benjamin Franklin, 1706 - 1790,

Diligence is the mother of good luck.

Benjamin Franklin, 1706 - 1790, 1732

Leisure is the time for doing something useful. This leisure the diligent person will obtain the lazy one never.

Benjamin Franklin 1706 - 1790, Poor Richard's Almanack

It is more noble to give yourself completely to one individual than to labor diligently for the salvation of the masses.

Dag Hammarskjold, 1905 –1961

Labor diligently to increase your property.

Horace, 65 – 8 BC

Few things are impossible to diligence and skill. Great works are performed not by strength, but perseverance.

Samuel Johnson, 1709 – 1784

What we hope ever to do with ease, we must learn first to do with diligence.

Samuel Johnson, 1709 – 1784

My share of the work of the world may be limited, but the fact that it is work makes it precious. Darwin could work only half an hour at a time; but in many diligent half-hours he laid anew the foundations of philosophy. Green, the historian, tells us that the world is moved not only by the mighty shoves of the heroes, but also by the aggregate of the tiny pushes of each honest worker.

Helen Keller, 1880 – 1968

The leading rule for the lawyer, as for the man of every other calling, is diligence.

Abraham Lincoln, 1809 – 1865

Nothing is so difficult that diligence cannot master it.

Malagasy Proverb

He who labors diligently need never despair; for all things are accomplished by diligence and labor.

Menander of Athens, 342 – 292 BC

It is the invariable habit of bureaucracies, at all times and everywhere, to assume...that every citizen is a criminal. Their one apparent purpose, pursued with a relentless and furious diligence, is to convert the assumption into a fact. They hunt endlessly for proofs, and, when proofs are lacking, for mere suspicions. The moment they become aware of a definite citizen, John Doe, seeking what is his right under the law, they begin searching feverishly for an excuse for withholding it from him.

H.L. Mencken, 1880 – 1956

If the study of all these sciences which we have enumerated, should ever bring us to their mutual association and relationship, and teach us the nature of the ties which bind them together, I believe that the diligent treatment of them will forward the objects which we have in view, and that the labor, which otherwise would be fruitless, will be well bestowed.

Plato, 429/427 – 348/347 BC

Diligence is a great teacher.

Saudi Arabian Proverb

Diligence is a very great help even to a mediocre intelligence. -Diligentia maximum etiam mediocris ingeni subsidium

Lucius Annaeus Seneca, 4 BC - 65 AD

There is nothing which persevering effort and unceasing and diligent care can not accomplish.

Lucius Annaeus Seneca, 4 BC - 65 AD

That which ordinary men are fit for, I am qualified in, and the best of me is diligence.

William Shakespeare, 1564 – 1616

Where luck is wanting, diligence is useless.

Spanish Proverb

A man of sense is never discouraged by difficulties; he redoubles his industry and his diligence, he perseveres, and infallibly prevails at last.

Lord Chesterfield Stanhope, 1694 - 1773

Can the garden afford any thing more delightful to view than those forests of asparagus, artichokes, lettuce, peas, beans and other legumes and edulous plants so different in colour and of such various shapes, rising at it were from the dead and piercing the ground in so many thousand places as they do, courting the admiration or requiring the care of the diligent Gardiner.

Stephen Switzer, The Practical Gardener, 1727

If Edison had a needle to find in a haystack, he would proceed at once with the diligence of the bee to examine straw after straw until he found the object of his search. I was a sorry witness of such doings, knowing that a little theory and calculation would have saved him ninety percent of his labor.   

Nikola Tesla (1857 - 1943), New York Times, October 19, 1931

Persevere in virtue and diligence.

Titus Livius, 59 BC– AD 17

Diligence is a good thing, but taking things easy is much more restful

Mark Twain (Samuel Langhorne Clemens), 1835 – 1910

When superior people hear of the Way, they carry it out with diligence. When middling people hear of the Way, it sometimes seems to be there, sometimes not. When lesser people hear of the Way, they ridicule it greatly. If they didn't laugh at it, it wouldn't be the Way.

Lao Tzu, c.604 - 531 BC, Tao Te Ching

Charles F. Bacon, CEO & Keeper of the Vision

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Due Diligence, Inc.

Corporate investment strategy is about making choices, and at the end of the day, dealing with the consequences of those choices. The problems with making decisions about investments is that often corporate investment managers do not understand the impact of the decisions on their enterprise, and even worse, are not aware of every aspect of the decisions being made. The key is to make sure that the process is properly founded, planned, monitored, and assessed. A solid corporate investment due diligence program allows each step within the process to be fully understood and the related risks assessed. 

Investments can be many different types:

• Corporate Internal Finance
• Credit from Customers
• Credit from Equipment Suppliers
• Credit from Suppliers
• Credit Terms from Banks
• Grants from Government Bodies
• Lease Finance
• Loans from Government Bodies
• Loans from other Banks
• Loans from other Stakeholders
• Loans from own Bank
• Loans from Owners
• Preferential/Special Funding
• Private Equity Capital
• Public Equity Capital

Investments can come from different sources:

• Advisors
• Banks
• Board Members
• Existing Investors
• Finance Firms
• Individuals
• Investment Banks
• Government Sources
• Industry Sources
• Intermediaries
• Merchant Banks
• Principals
• Team Members

Corporate Investment Due Diligence

A strong corporate investment due diligence process should provide corporate investment decision makers with a complete system. That system should include a list of steps to appreciate their investment wishes, to make their investments, and then to make sure that those investments perform to everyone’s satisfaction. Here is a series of recommended steps to understand and refine corporate investment programs, guiding those investments to perform at their best.

1. Set up Your Investment Fundamentals, including:

• Build solid strategic and tactical plans for corporate investing
• Determine if there any overly concentrated or restricted investments
• Determine if there are any unrealized gains
• Determine the existing portfolio investments, liquid & illiquid
• Determine the liabilities of the existing portfolio investments
• Determine the true investment experience of the team

• Approval procedures for all steps in the investment process
• Cash flow needs
• Performance objectives
• Risk tolerances
• Tax planning
• Time horizons

3. Develop the Investment Strategy, including:

• Determine how much of your investment process will be internal or external
• Determine the acceptable risk / reward ratios
• Determine how to maximize the risk / reward ratios
• Determine how to minimize tax costs
• Determine what asset focus is appropriate
• Determine how investment decisions affect corporate benchmarks

4. Implement the Investment Strategy

5. Measure Performance, including:

• Performance Attribution
• Performance Reporting
• Performance Tracking

5. Monitor the Investments, including:

• Review objectives & strategies on an ongoing, periodic basis
• Revise methodologies
• Monitor market conditions
• Assess market conditions changes
• Revise strategic assumptions
• Revise tactical assumptions
• Change asset allocations

The primary points for corporate investment due diligence are:

• Accurately and totally define investment assumptions
• Constantly and completely understand current investment strategies and tactics
• Accurately define investment goals
• Accurately define methodologies to achieve those goals
• Implement carefully but firmly
• Measure everything
• Monitor everything
• Change assumptions, strategies and tactics when necessary

Charles F. Bacon, CEO & Keeper of the Vision
Due Diligence, Inc.
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A corporate due diligence system and strategy will help improve financial performance, strengthen competitive positions, expand organizations more effectively, preserve human performance and develop internal know-how. With these improvements, companies are better able to grow through mergers and acquisitions, spin-offs, and alliances.

A corporate due diligence system adds new power to the organization, adding to the existing strengths of management and staff, creating more value for a unit or division, as well as improving its abilities and success rate when acquiring or merging with new firms. In a nutshell, it also can help prevent the decision maker from looking like an idiot.

The decision to go ahead with a decision will ultimately be based on opinion. One hopes it is an informed opinion.

Cable mogul Bill Daniels of Daniels Cablevision, regarded by the industry as "the father of cable television" had a sign on his desk that said it all: "A man's opinion is no better than his information."

Click here to learn more about Better Due Diligence.

Charles F. Bacon, CEO & Keeper of the Vision
Due Diligence, Inc.
Email

(Part One of a two-part article)

Confidentiality agreements, also known as non-disclosure agreements or NDAs, are so prevalent at many levels of business as to be ubiquitous, especially in the United States. Yet, more often than not, these documents and their use are extraordinarily misunderstood, fatally constructed, or incredibly mismanaged. Even more amazing, often all of these issues exist in organizations simultaneously.

Intellectual property is the very foundation of society. Without ideas, and the ability to protect them, society would come to a screeching halt. Confidentiality and non-disclosure agreements are essential to this equation:

But, over the past few decades, a confidentiality cult has evolved, countless people thinking that they are not allowed to blink unless everyone executes everyone’s confidentiality agreement. The range of inanities is astonishing:

1. How can I trust you if you don’t sign our agreement?
2. Before we can talk about anything, we must spend countless weeks or months with the decision makers on both sides, the executives, the senior team members, the Board Members, your lawyers and our lawyers, and anyone else we can convince to be a part of this miasma.
3. Oh and let us not forget, we really like to spend lots and lots of money, before we even know if we have anything worth talking about at all.
4. Our lawyers insist everyone must execute confidentiality agreements. (For any purpose!)

This approach tells more experienced people that they are dealing with someone who simply is naïve… who has been ill-informed by the countless confidentiality cult members and is now a cult member themselves, the zealot guarding all the so-called secrets at all costs.

And, perhaps most disturbing, are the many lawyers, accountants and other professionals who believe that they must take this stance, otherwise they are not adequately protecting their clients.

Enlightened people know that ultimately there are two ways to protect intellectual property:

• One: Simply never disclose the truly confidential or proprietary aspects of a business, product, service or innovation outside of the inner circle.
• Two: If you must disclose confidential information, simply make confidential disclosures in stages, after developing good foundations at each stage for ongoing communications

The quickest way to damage a potential relationship with that wonderful introduction you worked so hard to find is to insist that nothing can be discussed until “we get the NDA out of the way”. If you approach people this way, the more sophisticated the business person, the more you are going to never develop that relationship.

Part Two: Rational Due Diligence Applied to Confidentiality Agreements

Charles F. Bacon, CEO & Keeper of the Vision

Email

Due Diligence, Inc.

A corporate-wide communication and education strategy and system are critical to a well designed due diligence system. People want to know why someone is poking around in “their” stuff. The aim is awareness and understanding about the benefits of sound due diligence practices.

One task is to overcome long-standing beliefs that “information is power that ought to be hoarded, not shared”. The message is simple – “We are not seeking fault. We need information from everyone to make this organization successful.”

An integrated internal communications strategy will ensure all audiences, regardless of their preferred mode of communication, hear key messages. It’s about setting expectations and then meeting them.

Click here to learn more about Better Due Diligence.

Charles F. Bacon, CEO & Keeper of the Vision

Email

Due Diligence, Inc.

Over the decades, I have heard every excuse why a company does not need a business plan. Some of these excuses are very creative, some very silly, some very foolish, some quite daft, some very obtuse, some so ludicrous that no one can fathom the lack of reasoning. One young firm told me they needed data mining more than a business plan. Let’s ignore the obvious question of on what large group of data do they have to perform data mining when they are less than two years old. What will happen to this firm when they go to equity sources, or debt sources, or try to run their firm over the next few years, all without a business plan? Nada… Zilch… Nil… Naught… Nothing… Zero… Zip… In fact, the equity and debt sources will escort them right out of their offices, and the firm will wander, maybe get somewhere, most likely nowhere great.

‘Cheshire Puss,’… ‘Would you tell me, please, which way I ought to go from here?’ said Alice.

'That depends a good deal on where you want to get to,' said the Cat.

'I don't much care where-' said Alice.

'Then it doesn't matter which way you go,' said the Cat.

'-so long as I get SOMEWHERE,' Alice added as an explanation.

'Oh, you're sure to do that,' said the Cat, 'if you only walk long enough.'

Lewis Carroll, Alice’s Adventures in Wonderland

So… pick any direction … Are you going anywhere in particular? How long can you keep walking?

Here are some of the many good reasons why every firm needs a business plan:

• When you want equity sources to consider your firm’s request for capital.
• When you want debt sources to consider your firm’s request for capital.
• When you want to show your sophistication.
• When you want to have a focused set of activities for your firm.
• When you want people to take your firm seriously.
• When you want to show your firm’s history accurately.
• When you want to show your firm’s management capabilities.
• When you want to show your firm’s competitive marketplace position.
• When you want to define where your firm is going.
• When you want how your firm is going to achieve its goals.
• When you want your firm to save money.
• When you want your firm to save time.
• When you want to understand your firm’s costs.
• When you want to understand your firm’s potential losses.
• When you want to show how prepared your firm is.
• When you want to understand your firm’s revenues.
• When you want to understand your firm’s customers.
• When you want to understand your firm’s products & services.
• When you want to control your strategies, finances, objectives, or anything else.
• When you want to understand your firm’s people.

The list goes on and on. If you are leading a business or part of the team leading the business, you have to know where you are, where you want to get to, and how you are going to get there. Your business plan is an absolutely critical foundation requirement for your business, and your plan should be a living roadmap that changes and grows with the changes and growth of your business.

Charles F. Bacon, CEO & Keeper of the Vision
charlesbacon@superdiligence.com
Due Diligence, Inc.

Fraud Prevention

Part Two

Read Part One.

From Part One: There are countless financial instruments, business documents and corporate/financial structures which are legitimate and have value. However, the con man, huckster, fraudster and scammer will use everyone and everything to part you from your money. Part One also contains a few recommendations to try to stay away from frauds and scams.

Part Two

Business-Related Frauds & Scams

1. Advance Fee Financing Scams (aka Up-Front Fee Scams): These are those wonderful brokers offering incredible financing for any and all purposes, including paying off all debts, erase bad credit, buy a gold mine, acquire a company, etc. Advance fees range from $10 to hundreds of thousands (even millions!) to cover anything from processing fees, first payments, "I'll hop a plane tonight to Zurich to get your money," etc., etc.
2. African-American Reparations: Quoted from the IRS Website: “The Internal Revenue Service today cautioned African- Americans not to be misled by anyone offering to help them file for tax credits or refunds related to reparations for slavery. There is no such provision in the tax law. Those who pay to have reparations-related tax claims prepared are being deceived. IRS centers nationwide have received a growing number of such slavery reparations claims this year, repeating similar experiences in 1994 and 1996. The IRS has seen two principal reparations schemes. In one, the person claims a credit for "black investment taxes" or "reparations for African-Americans." In the other, the person attaches a form listing thousands of dollars in tax withholding that, in fact, never occurred.”
3. Alaskan Trusts and Delaware Trusts: Supposed asset protection tools. The lawyers, trust companies and banks in these states are making money, but, sister state judgments are still enforceable in both Alaska and Delaware.
4. Annuity Abuse: Variable annuities can be good investments, but this arena is fraught with cons, misrepresentations, and what is worse, naive financial industry professionals who have not done their homework. And, only get into these investments if you are really careful, and really know what you are doing.
5. Anti-IRS theories (aka 16th Amendment): Run, do not walk, in the opposite direction.
6. Assembly /Craft Work at Home Scam: Just send in your money and you too can earn 100s and 1000s per month. All you have to do is purchase the kit/samples/equipment/training manual.
7. Asset Protection Experts with False Credentials: Countless people are presenting themselves as experts in asset protection. Legal and tax training is critical for professionals who provide valid asset protection services.
8. Asset Protection to Save Income Taxes: While asset protection plans will usually reduce estate taxes, no asset protection plan will reduce income taxes.
9. Asset/Revenue Understatements: Countless variations. Use a competent auditor, and if you smell something, use a forensically trained auditor.
10. Bait and Switch: Get excited by that super special low price, find out the product is junk, let the salesman talk you into the high price product.
11. Bank Examiner Swindle.
12. Bank Guarantee Frauds.
13. Bank Paper.
14. Bankruptcy Fraud.
15. Blocked Fund Programs: Just put up some dough and you too can get that money out of that third world or former eastern block country.
16. Bulk Email Scams.
17. Captive & Self-Insurance: If you create your own insurance company, you can pay yourself deductible premiums. Of course if you let the IRS in on the secret, they will tell you that there never was any chance that you could deduct anything, and by the way please pay the back taxes, interest, and those penalties that you owe.
18. Chain Letters.
19. Charging Order Protection: Often incorrectly used with Family Limited Partnership vehicle.
20. Child's Name Scam: Just give your money/assets to your child as a gift, and nobody can get it if they're trying to get it from you.
21. Concealed Liabilities and Expenses.
22. Constitutional Trusts and Pure Trusts: Wonderful idea. The Constitution must have given all us plain citizens magical protections against the evil government. Just don't let the IRS in on it, because these vehicles provide absolutely no benefits or protections at all.
23. Continuity Plans: Book of the month style, but they don’t send anything ahead of time for you to tell them don’t ship.
24. Corporate Fiefdoms: Watch out when some key employee or manager does everything in and out of his little fiefdom, especially where they have independent budget or purchasing authority.
25. Cyber Casinos.
26. Delayed Charge Offerings: You buy something, and you also find out later you have to buy another.
27. Diplomatic & Consulate Titles: Now you too can be a famous international diplomat, and nobody can ever arrest you, give you a speeding ticket, parking ticket, etc., and of course you never have to pay taxes again.
28. Dirt-Pile Scam (aka Gold Mining Scam) You get to invest in a gold mine. They even look legitimate, because it's quite easy to file a mining claim on land, often Federal land, but there isn't a real mine there, although you might find a few specks of gold in the fake assay you get when you try to check it out. Most often, the different parts of the scam, the mine, the sales operation, the assayer, corporate headquarters, etc. are in different states. Of course there's an impressive document to help convince you it's all legit, with pictures of the firm's executives, the mine, maps, assays, etc. If you are stupid enough to put in your money, you'll get pretty reports tolling the wonderful progress of the raw ore mining, refining operation, buying more mines, etc. These are also known as lull letters. In the end, the weather was bad, the labor force disappeared, equipment broke, the local officials screwed everything up with their big brother government requirements, or those silly environmentalists forced too much additional costs onto the operation.
29. Dominion of Melchizedek: A magical country in the South Pacific. Set up your bank or your offshore corporation, or participate in any number of incredibly wonderful financial programs. The magic is that there is no such country.
30. Employees whose lifestyle is beyond their compensation.
31. Envelope-Stuffing Work at Home Scam.
32. Fax Scam. Countless variations. Under the new laws, you can tell them not to send you any further unsolicited faxes offering office supplies/long distance telephone/vacations/etc.
33. Fictitious Revenues.
34. Foreign Trust Company: Let's see if we have this straight. You give somebody else your money and power of attorney so you can claim it's not yours and you don't have to pay taxes. Then, you don't have the money, and the IRS thinks you still have to pay them.
35. Former Eastern Block Banks: Here we go again, pyramids, or advance credit card fees, advance debit card fees, only this time those former Eastern Block countries have become capitalists, but their stupid, and therefore will pay you 1000's of percent on your money.
36. Free Seminars: They will tell you how to do amazing things that your accountant and attorney never heard of, and would never tell you even if they knew. Don't forget to buy all the books and tapes for hundreds and thousands of dollars.
37. Health Care and Health Insurance Fraud.
38. Health Magical Pill Scam.
39. Identity Theft (aka Impersonation Fraud, Account Takeover Fraud): Credit cards, checks, id's, etc. are stolen, and the identity is assumed, new credit is established, checks are forged, and bank accounts are accessed.
40. Improper Asset Valuations.
41. Improper Disclosures.
42. Incomplete Audit Trail.
43. Indian Banks & Trusts: Take advantage of Native American sovereignty and set up a bank or a trust that does not have to conform to US Federal and State laws.
44. Insurance fraud.
45. Intellectual property fraud. Copyright and trademark infringement violations, and trade secret theft.
46. Internal Audit: Right after the audit, the employee activates their fraud, since everyone thinks everything is all right.
47. International Chamber of Commerce (ICC) Scams that claim to use ICC documents and procedures, such as letters of credit or other special forms from the International Chamber of Commerce.
48. Home Lien: Your general contractor neglects to tell you that he didn’t pay his sub-contractors, so you end up with a lien on your home. Get a lien waiver from the general contractor and all sub-contractors and vendors, before you put out any money.
49. Letter of Credit Frauds.
50. Living Trusts: While a completely valid and legal vehicle, these have been seriously abused by the promoters and scammers.
51. Loaded Investments: Pay the financial planner the extra fees built in when they sell you "loaded" products.
52. Long Distance Telephone Scam: The target receives an official-sounding telephone call from a supposed telephone company employee, who says they are testing the line, and the target has to punch in 90# to complete the test. This gives the fake telephone employee the ability to make long distance telephone calls on the target's account.
53. Loss Leader: Put the competition out of business by selling below cost, then when you have the market all to yourself, charge whatever price you want. Sometimes also used with bait and switch tactics.
54. Magazine Subscription Sale: See Postage and Handling.
55. Management Claims: Everybody on my staff is honest, you don't have to check on them.
56. Medical equipment fraud.
57. Medicare fraud.
58. Missing Documents (aka Documents Accidentally Destroyed)
59. Missing Heir Scam.
60. Money Laundering.
61. Multi level marketing frauds.
62. Multiple order proposals: Buy your product, and find out later you ordered more products which will come later.
63. Negative Option Billing: You bought the product without even knowing, because the seller requires a rejection from you. Of course you probably didn’t notice because it was buried in the fine print.
64. Nevada Corporations: Over the years, we've seen more scams come out of Nevada then any other state for some reason. Maybe because of the corporate tax laws and so-called corporate secrecy. Who knows. In any event, if something smells wrong and it's from Nevada, even more reason to walk away.
65. New Credit: Now you too can instantly have a new credit file, and magically eliminate all your bad credit and all those nasty creditors who think you owe them money will disappear.
66. Nigerian Scam (aka Nigerian letter, Nigerian National Petroleum Company scam, Fax Scam, 419 Scam) An offer is received from an important-sounding person in Nigeria, sometimes other countries, with claims ranging from government over throws to murdered spouses who were high government officials, house arrest, etc. Assets are frozen by the new regime, hidden in a trunk, wrongly moved to another bank, etc. The dupe can make anywhere from large amounts to amazing amounts of money, by providing a bank account, form a new corporation, become a relative, etc. The dupe has to put up cash via wire transfer, or bring it to the country, and the assets will be miraculously unfrozen, the high government official will escape to a free country, etc. Reality includes money laundering, double invoicing oil or other commodity contracts (send the oversupply to another country outside Nigeria), bequests, etc. Cash is sent for collateral bonds, performance bonds, advance fees, transfer fees, credit, cod privileges. According to many sources, the Nigerian Scams are the third or second largest industry in Nigeria, and the government officials themselves are the bad guys. Another variation is that real or fake government officials contact victims of previous scams and offer the get the money back. Of course there are fees involved. Any such scheme should be sent to local authorities, who should refer the case to the INTERPOL National Central Bureau, who should then notify the Nigerian Federal Police. Over the years since I first started alerting people to this scam back in the early eighties, the variations of this scam have become ridiculous! I now have over 1,000 variations of these scams on file!
67. Obituary Hustle.
68. Offshore Bank Accounts: Nothing wrong with it. But you won't avoid any taxes, and if you follow the scammers' recommendations that you just have to keep the money offshore, be prepared to get a knock on the door some day from the IRS.
69. Offshore Bank: (aka Offshore Personal Bank, Offshore Private Bank) Go ahead and create your own bank in whatever country is popular with the scammers this year. Spend lots of money. Give it to the scammers, but don't expect to ever make a dime.
70. Offshore Credit Cards: Just put up the (processing, application, facilitation fee), and you too can have an unsecured offshore credit card with a great credit limit. Don't hold your breath waiting to receive the card.
71. Online Investment Scams.
72. Ponzi scams: Countless variations. The first investor gets part or all their money back from the next investor(s), and so on and so on, until the fraudster has built up enough cash to skip town, and probably start over again in a new location.
73. Postage and Handling: What a wonderful deal! Get that magazine, or whatever, without cost. Just pay the postage and handling, which turns out to be ridiculously high. AKA Magazine Subscription Sale scam.
74. Pre-Approved, False Credit Cards: The so-called credit card company offers preapproved credit cards, typically with a sizeable limit such as $5,000 or $10,000. There is a charge, typically $10-30 to get the card. When the card is received, the new cardholder learns that the credit card cannot be used to buy products anywhere but directly from the company.
75. Premium Stock Sales (aka Pump and Dump): You too can sell stock at a high price and then the stock takes a dive all the way to the ground. Just wait for the SEC Enforcement people to show up.
76. Pre-Notification Plans: See Negative Option Billing.
77. Prime Bank Instrument (aka Bank Trading Program, Bank Roll Program, Bank Debenture Trading Program, Bank Paper, Blocked Fund Program, Irrevocable Letter of Credit Program): Somehow, enormous profits will show up in days/weeks, and keep on repeating. The mark is offered to become part of a highly secret group that can make more money than anyone in the world. All the mark has to do is put money with other investors into a large pool, anywhere from millions to billions. The pool will then purchase large bank notes from the banks with the biggest names or countries' central banks or organizations such as the IMF, Federal Reserve, World Bank, and these notes are resold over and over again, within a short times, even within days, and everyone will get huge returns. No one can tell anyone about it, even their attorneys or accountants, because only a few people in the entire world are supposed to know. Variations include adding a wonderful tax haven domicile so that no one pays any taxes, or everything is guaranteed by a another bank instrument such as a letter of credit, or the mark puts up collateral to lend against and therefore the principal is never touched, etc. The mark cannot contact the bank, because they will only talk to people already in the know. Complex and impressive documents are available to mystify the naïve mark. The mark is often invited to an exotic location to attend an invitation-only private seminar. Banks, brokerage houses and law firms are sometimes involved, often fake organizations, but sometimes real firms are unwittingly involved.
78. Property Encumbrance: Somebody puts out fake loans that encumber your assets, so that you can protect those assets from whoever.
79. Publications Work at Home Scam.
80. Pyramid scams.
81. Quiet Price Increases: You are in a monthly contract, and the price goes up without telling you.
82. Religious scams.
83. Renewal Billing: After your first contract has expired, all of a sudden you get invoices for renewal, even after the service has been completed.
84. Rolling lab scams.
85. Sales Commissions: Financial planners who charge sales commissions have an inherent conflict of interest.
86. Secret Tapes or Books: Buy tapes or books to learn how to do anything from setting up an offshore bank, become your own country, pay no taxes, etc.
87. Securities and Commodities Fraud: Countless variations.
88. Self-Liquidating Loans (aka Self-Liquidating Walk Away Loans): The scammer charges 100s or 1000s for you to be convinced that there is no such thing as a loan for millions or billions that disappears.
89. Slave Reparation Fraud: Quoted from the IRS Website: “The Internal Revenue Service today cautioned African- Americans not to be misled by anyone offering to help them file for tax credits or refunds related to reparations for slavery. There is no such provision in the tax law. Those who pay to have reparations-related tax claims prepared are being deceived. IRS centers nationwide have received a growing number of such slavery reparations claims this year, repeating similar experiences in 1994 and 1996. The IRS has seen two principal reparations schemes. In one, the person claims a credit for "black investment taxes" or "reparations for African-Americans." In the other, the person attaches a form listing thousands of dollars in tax withholding that, in fact, never occurred.”
90. Sovereign Entity (aka Independent Sovereign Entity or Private Sovereign Entity) Become your own country, don't pay any taxes to anyone, including the country you live in. Variations include tax laws, 14th amendment, becoming a citizen of just your state of residence and not the Federal government.
91. Suspicious Documents: Usually accounting documents, including invoices or payment vouchers, which have no other referenced documents.
92. Sweepstakes Scam: You have won a brand new car/TV/house/motor home/boat. All you have to do is pay for the transfer/registration/preparation/transportation costs.
93. Tax Avoidance Programs.
94. Telemarketing Fraud.
95. The "Don't Tell Anybody" Scam: This is where your magical asset protection plan is so secret that you can't tell anybody.
96. Transfer Payments: Watch out if one of your trusted employees make a wire transfer or other payments to some exotic place, especially right before a holiday.
97. Up-Front Fee Scam: (see #1)
98. Wife's Name Scam: Just give your money/assets to your wife as a gift, and nobody can get it if they're trying to get it from you.
99. Work Backlogs: Keep an eye on employees for purposeful records confusion.
100. Yellow Pages Invoice Scams.

Help me keep this list current.

Please email me any business-related scams and frauds not shown here, and I will update this list. Thanks. 

Charles F. Bacon, CEO & Keeper of the Vision
email
Due Diligence, Inc.

There are countless financial instruments, business documents and corporate/financial structures which are legitimate and have value. However, the con man, huckster, fraudster and scammer will use everyone and everything to part you from your money. And some legitimate systems are abused or simply overused. Here are a few recommendations to try to stay away from frauds and scams:

• Take your time. The fraudster needs you to make a decision on the spot. If you are being rushed aggressively, slow down even more, or just stop right there.
• Check out every claim made in sales calls, written documentation and every website connected to the company.
• Do a web search on each person and each company name. A lot of people think Google is the place to go. Google is great, but remember, there are a huge number of search systems.
• Call your state's securities regulatory office and check if the party has violated securities laws.
• If someone claims to be an expert in something that sounds too good, and especially if your attorney, accountant or financial planner never heard of the program before, cross check with people you know to be true experts in the area, although the best course of action is to simply say no and move on.
• Maintain adequate internal controls to prevent internal frauds, especially when going through major corporate changes.
• The most successful frauds are schemes where many people are involved, and perhaps only one person knows all of the details, and multiple locations are involved. Keep looking until you find all the parts.
• Hire competent, respected and professional attorneys, accountants, and auditors, and bring in specialists on all major corporate actions.
• Does the company have a phone number that works? Call it. Also, call the phone company's Information line and check if the phone number is for the same company.
• Call the local Attorney General Office.
• Never send money to a PO Box, unless you already know the firm.
• Don’t buy anything from a new supplier or vendor until you have verified that the company exists and, ideally, check their reputation.
• Never give out office equipment information unless you already know the party.
• Email us. We will let you know if they are in our database of over 35,000 individuals and firms that we have collected in the last 25+ years.

The best advice: "If it sounds too good to be true….."

A Few Fraud Prevention Resources:

Federal Bureau of Investigation (FBI)

Financial Crimes Enforcement Network (FINCEN)

Internal Revenue Service: Criminal Investigation Division (CID)

National Inventor Fraud Center

Secret Service: Financial Crimes Division
U.S. Postal Inspection Service

Securities & Exchange Commission (SEC)

The Better Business Bureau: Alerts

National Fraud Information Center

Due Diligence, Inc. 

Next: Fraud Prevention, Part 2: Compiled List of Business-Related Frauds & Scams

                                Charles F. Bacon, CEO & Keeper of the Vision
                                charlesbacon@superdiligence.com
                                Due Diligence, Inc.

The specific components in developing and implementing a due diligence system will vary greatly depending on the status of existing systems and the corporate culture. (Corporate culture is a huge factor, and one worthy of study and attention.) Once the foundations have been established, a list can be produced targeting specific projects, resources, responsibilities, and deadlines. Some of the projects that might be incorporated include:

• Due Diligence Audits of each Department
• Developing Due Diligence Decision-Making Specifications, Policies and Procedures
• Identification of under-performing corporate decisions;
• Review diligent decision specifications in each area of the organization, such as acquisitions, financings, research and development, geographic expansion, and hiring practices;
• Define the due diligence processes required for corporate events;
• Set overall corporate due diligence objectives;
• Monitor due diligence objectives progress;
• Inform vendors of the company’s commitment to high quality services;
• Require vendors to have good due diligence practices;
• Build in information on the due diligence system in the organization’s publications, including product literature, newsletters, advertising, and the annual report;
• Create a risk minimization system;
• Involve state and national regulatory agencies in a proactive fashion to promote goodwill and head off difficult securities problems;
• Educate the company’s personnel on the needs and benefits of diligent processes;
• Reward and recognition systems tied to due diligence efforts.

Click here to learn more about Better Due Diligence.

Charles F. Bacon, CEO & Keeper of the Vision
charlesbacon@superdiligence.com
Due Diligence, Inc.

Legal professionals perform the clear majority of traditional due diligence projects. They typically also play the lead role, directing everyone else in the process. The second largest player in traditional due diligence projects are typically the financial professionals. The legal professionals’ are primarily concerned with all the legalities and any possible liabilities in a deal, and the financial professionals’ primary foci are the financial data and the tax consequences.

Due diligence does not exist as a separate discipline in the educational institutions. Due diligence is not taught in law, business, or in any schools. If discussed at all in the education environment, due diligence is buried inside countless topics. Due diligence is simply not a focus that the educational community has recognized.

Rather, due diligence has evolved over decades by tradition. It is very interesting that no one questions whether the traditional due diligence practices are sound. What is even more interesting that rarely does anyone look further into a prospective acquisition or merger beyond the mere basics.

I wonder if the two-thirds failure rate of all mergers and acquisitions has anything to do with this essentially blind acceptance of the entire traditional due diligence process?

Typically, the target of the due diligence tends to evoke irritation at the process from the beginning, and, as the due diligence process gets longer and longer, the reluctance to push for important information gets stronger and stronger. As the time lengthens and the costs rise, it becomes easier and easier for management to justify minimizing or even ignoring anything that is more difficult. Many if not most firms suffer from mild to extreme reluctance to consult more qualified outside expertise. It is amazing how many excuses can be found to cut short even the most minimal due diligence processes. Finally, all too often, the deal is done before any real due diligence, traditional or otherwise, takes place. Too many times the deal has been done in the board room or on the golf course, then the boss says ‘go do the due diligence but don’t bother me with the results, I am already working on my big speech to the shareholders bragging about this great deal.’

An enormous emphasis is also placed on the short term by almost all firms, especially those in the public markets. A quick increase in price or earnings for the stock market is in many cases the sole reason for an M&A transaction. Quick revenue increases or cost reductions often make management the hero, albeit almost always at the cost of the stakeholders in the long term.

I again wonder that, in light of the fact that approximately two thirds of all mergers and acquisitions fail completely, or fail to deliver the value expected, that there might be something wrong with the traditional due diligence process on these deals?

From my perspective, the traditional due diligence methods account for 10% to 25% of what I define as a complete due diligence process.

In my humble opinion, traditional due diligence looks too much at the past, and not enough at the future, and is usually too fast, and too narrow.

Important note: I am not saying that there is anything wrong with the countless great attorneys, terrific financial people, and top-drawer specialty consultants, of whom I have had the pleasure of working with many of them over the years. Quite the opposite… they are absolutely necessary. I am simply saying that their work is only part of a complete due diligence process.

Charles F. Bacon, CEO & Keeper of the Vision
charlesbacon@superdiligence.com
Due Diligence, Inc.

This will be a team effort. One person won’t accomplish what you need. Alternate perspectives are impossible in such a case. In essence, you can’t fix the mind you’ve got with the mind you’ve got.

Start by appointing a committed, eager, resourceful and authoritative due diligence system manager. This person has primary responsibility for implementing the due diligence system. It’s a full-time job. This person must be a believer, because the job is more than just organizing this activity; he or she will also be its champion and must clearly represent the commitment of top management. The due diligence system manager must have the authority right from the top to make it happen. Listen to this person, even when he/she says things you don’t want to hear.

The due diligence team begins by gathering information about all corporate activities and examining all parts of the organization.

The due diligence department/team must interact with all other departments of the organization. This is the crucial point where findings are integrated to provide a valid “big picture”, including the interrelations of the parts. Inter-organizational dynamics usually have positive or negative effects on the business – they are seldom neutral. Examination of one part of the organization in a vacuum will yield little of use.

All other departments must support the due diligence effort. Cooperation leads to better knowledge and acceptance of the due diligence process in the organization. Corporate leaders should even consider incentives to reward this support and cooperation and success over time.

Click here to learn more about Better Due Diligence.

Charles F. Bacon, CEO & Keeper of the Vision
charlesbacon@superdiligence.com
Due Diligence, Inc.

Where Can Due Diligence Be Applied?

I am often asked where due diligence can be applied. What follows is a partial list of the many areas where due diligence can help a company:

Applying due diligence to all parts of an organization will help improve financial performance, strengthen competitive positions, expand organizations more effectively, preserve human performance and increase internal know-how.  With these improvements, companies are better able to grow through mergers and acquisitions, spin-offs, and alliances. Comprehensive due diligence brings new power to the organization, adding to the existing strengths of management and staff, creating more value for a unit or division, as well as improving its abilities and success rate when acquiring or merging with new firms.

Charles F. Bacon, CEO & Keeper of the Vision
charlesbacon@superdiligence.com
Due Diligence, Inc.

Guest Author: Levy N. Rivers, Advisor, Due Diligence, Inc. 

During the 1990s, CEOs of most American companies focused on the bottom line with the single goal of creating shareholder wealth. The idea was for CEOs to look tough, act tough, and talk tough. Many of them would not have been caught dead discussing soft stuff like ethics, values, openness, or corporate responsibilities to customers, employees, and host communities. When the Enron/Andersen scandal broke, followed by a tidal wave of revelations of similar corporate crimes, the initial reactions among American business leaders ranged from deafening silence to “it’s just a few bad apples.” Not many spoke out in condemnation, and even fewer suggested the need for better executive behavior.
 
There is something refreshingly old-fashioned, therefore, about Bill George’s ‘Authentic Leadership: Rediscovering the Secrets to Creating Lasting Value’ (Jossey-Bass, 2003). During the 10 years George was CEO of the medical technology company Medtronic Inc., he practiced a philosophy in which “shareholders come third” — the belief that investors can benefit only as the result of efforts of empowered employees who effectively serve customers. To that end, George promulgated such business values as producing top-quality products, treating employees with respect, and acting with integrity in dealing with all his company’s stakeholders. The bottom line: Medtronic created $60 billion in value on his watch, and investors saw shares appreciate at a compound rate of 32 percent a year. 

He says the secret to his stewardship was the practice of “authentic leadership,” the traditional approach to running companies that had been the hallmark of such now nearly forgotten CEOs as Max DePree (Herman Miller), Jim Burke (Johnson & Johnson), David Packard (Hewlett-Packard), Ken Dayton (Dayton Hudson), and J. Irwin Miller (Cummins Engine). These are leaders, in George’s words, who were “committed to stewardship of their assets and to making a difference in the lives of the people they serve,” leaders who had “a deep sense of purpose” and who recognized “the importance of their service to society.” 

Importantly, he says there is no inherent contradiction between making one’s numbers (he did so himself 55 out of 56 quarters) and demonstrating ethical leadership; instead, he argues that leaders will not find the way to realize those two ends simultaneously if they don’t first establish doing so as their goal. 

Guest Author, Levy N. Rivers, Advisor, Due Diligence, Inc.
www.superdiligence.com