How to Conduct an Investigation into a Potential Business Partner

By Griffin, Douglas | American Banker, July 14, 1994 | Go to article overview

How to Conduct an Investigation into a Potential Business Partner


Griffin, Douglas, American Banker


What if someone has to make a decision based on incomplete information, or worse, on false or misleading information? Banks do just that every day, when they enter into relationships that cost them their reputation and millions of dollars if something goes wrong.

There is so much information available in the public domain that can be easily accessed directly or indirectly that there is no excuse for not doing some basic background checks on significant business partners.

That is what Continental Bank decided to do in 1989 when the investigative service division was asked to develop a due-diligence service that could quickly and accurately identify any significant information prior to making business commitments.

The service has grown rapidly, with hundreds of background investigations totaling over $1.5 billion in business exposure conducted in 1993. Approximately one in six of these investigations results in significant discoveries, resulting in estimated credit loss avoidance in the millions of dollars.

Where to Start

For basic checking about a company or an individual, start by going to a library. Today, libraries are really information centers with access to numerous databases. Ask for all the information available about a company or individuals.

Read everything that appears related to the subject business or individuals for indications of negative information and for references to other companies or associates. Evaluate each to decide if they need to be researched as well.

Look up the company and its principals in local phone directories. Watch for the unexpected; for example, lack of listings when you would expect to find one; addresses in locations seemingly inappropriate for the business or individual (a residential address for a business usually found in a commercial or industrial area; an address in a low- to moderate-priced housing community for an individual with a supposed high net worth or income.)

Telephone Checks

Back at the office, calls licensing agencies to verify that accountants' and attorneys' names appearing on documents provided are, in fact, licensed and in good standing. It is amazing how many documents contain the names of attorneys who are not really attorneys, doctors who are not really doctors, and financial planners who are not really financial planners.

Call Better Business Bureaus and the state attorney general's division of business or commercial law enforcement to see if there have been any complaints or investigations regarding the subject business and its principals. …

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