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An international investment bank got its fingers burned. It was unaware that Mr Smith, a leading personality behind a Jersey-based company, to whom it had lent millions of pounds, had a criminal record. Smith had been convicted of stealing £2 million from the pension fund of a company of which he was Chief Executive and was criticised in a 1994 DTI report into a collapsed property and finance group he was involved in. The bank were not aware of and did not provide potential investors with this information when selling over £500 million of the company’s property bonds and faced action from those investors when an investigation identified that funds had gone missing from the company.

The spread of capitalism into Central and Eastern Europe, the progressive expansion of the EU and the economic explosion in South-East Asia and India, have all led to huge opportunities for Irish companies to increase their competitiveness, grow and generate higher levels of wealth. But with these ever-increasing cross-border European and global opportunities, Irish businesses are exposed to an expanding range of financial and non-financial risks.

The majority of today’s Irish businesses are well aware of the need to conduct financial due diligence before acquiring another company, or entering into a business relationship. In fact, many local companies have their own in-house financial due diligence specialists. However, there is a risk that they may not focus enough on the importance of obtaining ‘corporate intelligence’, which can provide crucial non-financial background information about a future business partner or key individual, particularly in an unfamiliar overseas territory.

Information is power: knowing more about a potential partner or acquisition can help a company to avoid being exposed unwittingly to numerous future liabilities, including fraud and reputational damage. This can happen through their links to organised crime and money laundering or by using underpaid local workers or even child labour. Further, people are not always who they present themselves to be – something to be wary of when recruiting a key employee.

Riding the crest of the dotcom wave, a new internet search engine company believed it had recruited an ideally seasoned new CEO. Clutching a highly impressive CV, demonstrating both energetic vigour and vibrant intellect, the company decided that a more thorough investigation of the candidate’s credentials would be a waste of time, effort and money. However, the honeymoon period ended suddenly. Cracks appeared when it transpired that his ‘close contacts’ had never actually heard of him. He had embellished his application form, dressed up his accomplishments and even lied about his age. Whilst he was dismissed this was not without crushing management’s confidence and sullying shareholders’ trust in their executive decision-making ability. What exactly is corporate intelligence? Corporate intelligence is a combination of publicly, and non-publicly available information.

Public information Publicly available sources of information: -The media, including international press coverage and industry journals -On-line and locally sourced company filings, including copies of original filings

Directorship and shareholder records -Credit and bankruptcy records for companies and individuals -Asset registers, such as registers of interest in land, vehicles, ships, planes and artwork

Telephone and electoral roll records -Details of criminal and civil litigation and regulatory actions -Clients may wonder, ‘why not save on a fee and just run a query using an internet search engine, rather than pay consultants to undertake the research?’

Well, for a start, there is too much data on the internet, and investigators need to be experienced in looking for and finding the key information. It is vital to know which information is based on original sources and what is merely extracted from other websites. Also, you need to know where to look: for example information is not available electronically in all countries, and it may be necessary to go to a government office to obtain copies of annual accounts. An experienced analyst can do all this more efficiently and provide more reliable information, simply because they have built up expertise over many investigations.

Non-public information Non-public information is obtained from a variety of individuals in the relevant country. These people are trusted sources of good repute, who provide their services completely legally and have a proven track record of providing credible, reliable information. For example, contacts used by KPMG include individuals from law enforcement agencies, regulatory bodies and governments, the commercial and financial sectors, media and sport. We have strong capabilities in over 70 countries and good contacts in 40 others, from Albania to Zambia and Algeria to Zimbabwe.

These people help to paint a much more real picture of the target than could be obtained from publicly available documents. What do I get out of it?

The output of corporate intelligence should be a simple to understand, written or oral report, setting out the facts to assist you to make a more informed decision, or protect yourself further in a contract.

It may not be all bad news – even ‘negative’ information can be used to limit risk, or strengthen your negotiating position. The information may allow clients to feel safe in investing in regions that they might have otherwise considered too risky. There are Irish companies who have avoided investment overseas because of a perception of unacceptable risks, or fears that there are inadequate resources for gathering sufficient information to support an investment decision. But they could have managed that risk by using effective intelligence. Case studies An investment bank was approached for finance by a Pakistani textile company wishing to expand operations to Uzbekistan. Before committing, the bank made its own enquiries and sought assistance from KPMG to provide “corporate intelligence”. Using a network of contacts in Pakistan and Uzbekistan as well as local publicly available source data it was ascertained that the references provided by the company were forged, the directors behind the company were implicated in the death of a local journalist and were the subject of civil and criminal proceedings for non-payment of debt to three Pakistani banks. Their businesses were shams which had only ever existed on paper. In this case the client was able to withdraw from negotiations before any substantial investment had occurred and thus avoided significant embarrassment and financial loss.

A UK company sought corroboration of representations made to them by a local target company in Istanbul. The profile we undertook showed that it was controlled by undeclared backers who were members of the Turkish military; it had just lost two major contracts with high-profile American credit card companies; local banks were in the process of foreclosure for non-payment of loans and the key representative of the target had recently been released from Turkish prison for grievous bodily harm. The client was able to use the information to gain authorisation from its US parent company to continue negotiations but the information collected allowed them to re-negotiate the deal from a position of strength.

We recently advised a property developer who was looking to expand overseas and had identified a good business opportunity in Europe. However, because the corporate ownership appeared complex and involved Egyptian and Sudanese principals, the developer wanted to ensure that it properly understood the risks. In that case, we were able to obtain full financial information on all companies in the group from a variety of countries, and were able to supplement this with information from trusted sources in the relevant countries who gave the principals a clean bill of health. This meant that the client was able to go ahead with a lucrative deal, which they might have been reluctant to do in the absence of more complete information. Conclusion Helping companies to identify and avoid future headaches is a vital service provided by corporate intelligence specialists. But it also helps to ensure that potentially profitable opportunities are not necessarily overlooked because, at first glance, they appear too risky.

However, it is a specialist service which requires experienced analysts and access to a range of trusted, proven and legitimate contacts.

Recent economic and political events in Ireland and around the world clearly highlight the importance of corporate intelligence in managing the risks of doing business. Adding corporate intelligence to the due diligence roster can give businesses added assurance of having all relevant information, including information that concerns prior corporate conduct and potential liabilities before a deal is concluded. Those types of risk-based decisions should result in deals with fewer future surprises and fewer hidden liabilities.

The need for corporate intelligence -Integrity of corporate management – reassurance that local business partners or suppliers, and closely associated parties, are of sound repute and financial standing and have a track record of strong business performance -‘Sharp’ business practices – assessment of inappropriate or potentially illegal activity (eg bribery and corruption, money laundering, breach of trade sanctions, tax evasion, breaches of foreign currency controls, grey market sales, counterfeiting or overproduction) and connections with organised crime or terrorism -Intermediaries – a thorough assessment of the associations and links of potential intermediaries and agents to provide comfort in respect of anti-bribery and corruption legislation Identification of controlling interests – analysis of complex and secretive holding structures to identify the true beneficial owners and controllers of an entity, whether for purposes of investment, investigation or litigation -Management representations – obtaining public data and undertaking background intelligence checks with local sources to corroborate local management representations Local market issues – identification of business factors unique to local markets that could impact on strategy (eg foreign ownership restrictions, regulatory regime, political environment) -Supply chain – identification of possible conflicts of interest and assessment of the capacity of individuals and companies within the supply chain