Due Diligence: Still vitally necessary to protect your business needs by Martin Dubbey

Due Diligence: Still vitally necessary to protect your business needs.
Don’t be a victim of fraud

by Martin Dubbey

Increasingly due diligence is seen by many as a necessary hardship in order to ‘tick box’ compliance enquiries. Whilst satisfying the regulator of this activity, companies and indeed individuals should not lose sight of the importance of more in-depth enhanced due diligence to satisfy themselves they are dealing with genuine and legitimate business interests. The growing number of frauds that we see, is an indicator that not everyone is learning this lesson.

Hardly a day goes past without receiving warnings about record numbers of victims of fraud, new fraud schemes, and how fraudsters are adapting their techniques in order to enhance the sophistication of their scams.

This was recently highlighted under Operation Skein, the gardaí investigation into the notorious Black Axe crime network who focussed on email fraud, targeting individuals abroad and laundering up to €64 million in Ireland with the help of 4000 money mules.

With the growing difficulties in the financial sector, discussions around enhanced cybersecurity, insider threats and the deepening financial crisis the growth in fraud is likely to become part of our daily consideration, which of course it should be. The financial losses experienced by victims are increasing, as too is the lesser discussed psychological impact.

Enhanced levels of due diligence can quickly establish the root credibility of the organisation or person you are dealing with. The checks are straightforward to implement and provide an assurance of who you are dealing with.

An obvious statement, people commit fraud, they may have the most genuine and legitimate looking profile but peel this back and what you may find is a criminal who is out to defraud innocent and sometimes vulnerable victims.

This article discusses two cases of authorised push payment fraud (APP), both from Ireland which serve to highlight the problem. APP scams occur where a payer is deceived or defrauded into authorising a payment to a criminal. These have increased both in value and volume, with many individuals suffering significant financial and emotional harm. The two most common APP scams are impersonation APP scams and APP investment scams.With years of experience, it can be said that a small due diligence investment now can prevent years of misery and financial loss down the line. How many times has it been said, ‘if only I had done proper due diligence?’

two people looking at paper on table
Why Due Diligence?

Two case examples that emanated from Ireland demonstrate the lengths some people will go to commit fraud.

The first APP impersonation case concerned an investment fraud involving an Irish company. The company needed investment funds to expand its operations and in comes a larger than life American, war veteran of Vietnam, offering the funds they needed. Everything was going well, but something about him created unease. When he started asking for some upfront investment coverage the case was referred for due diligence and an examination of the war veteran’s CV identified a definite red flag.

He stated that he had for 15 years being studying native Americans in their natural habitat. That immediately interpreted as 15 years in prison, probably a federal facility for a more serious offence. A check on his business address revealed a library in his home state and most importantly a check of the Vietnam war dead indicated he had been killed in 1972. These enquiries took less than an hour. Clearly the Irish company pulled out of the transaction. They were of course disappointed, but this action undoubtedly saved them from future pain and financial loss. The American was arrested later trying to renew his fake passport at the US Embassy. Police reports say that he refused to give his real name. To this day the Irish company have no idea as to the identity of who they were dealing with.

Another recent APP impersonation case involves a Dublin based company dealing in property transactions for their overseas investors. In this case their email system was hacked, and the fraudsters were able to insert fake details of the property investment companies and bank accounts to be paid out, not in Ireland, but in the UK. This change should have been an immediate red flag as the properties were in Ireland. Nonetheless, the transactions continued in good faith and significant sums were invested in three UK companies rather than Irish. A quick enhanced due diligence check would have established that each of the companies was a recently founded UK limited company with no interest in property markets. There was a single director and shareholder of each company emanating from Baltic states countries and no trading activity. None of them had any economic value.

At this stage the investors have lost their money and face a long battle with regulators and the police to help recoup their losses, if indeed this is possible. The point is that an enhanced check would have identified these risks and highlighted it back to the investment firm and investors whether they should have invested.

Recent reports by the BBC indicate estimates of 15,000 fake companies in the UK, probably even more. The process for setting up a company in the UK takes about 20 minutes and costs around 15 Euros. Whilst it is reported that the UK registry of companies is prone to fraudulent activity so is the Irish register and others.

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The Process of Enhanced Due Diligence
The process is straightforward, an enhanced application is to obtain knowledge of the subjects’ background financial and reputational standing. This higher risk approach differs from the check box compliance route and is necessary for a deep understanding of the subject on which business decisions can be made.

Several techniques can be considered at this stage, these can be overt or covert. However, many would expect to be the subject of due diligence in any transaction these days. Immediate red flags can then be raised by the inability to produce key business documents, or in avoiding straight forward questions around their business structure.

One of the key questions around business structure, is of course, who owns it. On one hand the UK property investment company set up in the past few weeks by a single director and shareholder from a high-risk country should bring immediate flags.

But layered complex ownership structures connected to high-risk countries should also be of concern. Think simply if I lost my money how would I get it back? In both examples the chances of recovery are minimal. Therefore, it is crucial to be sure who are you are in fact dealing with.

There are many other indicators that suggest proposals may not be genuine. To demonstrate, in another recent case, again an APP investment scam, the investor had offered a one million USD investment from his company portfolio. The client signed off their investment before clearing any funds. A quick check of the company indicated that it had been dormant for 6 years. Clearly no credibility at all found in the due diligence, but it happens.

If necessary, you can go even more in-depth, challenge what you have been told, look physically if you can at the addresses you have been given for the company, are they genuine, or is it the local library like our American war veteran offered? On-line mapping systems are of course a great time saver here, but again there is nothing like a physical check if possible. An online map may give you a nice picture of the premises a year ago but visit now and it is boarded up with a pile of post on the floor.

An adverse media check is always of value. Whilst this is normally undertaken at basic level, check all the layers of the people and companies you are dealing with. With this be geo-political aware. This means to follow up changes caused by regional conflict where the status of people you are dealing with can change overnight. The situation in Ukraine following the Russian invasion is a prime example.

Do not limit your enquiries to just the beginning of the transaction. If it is a complicated on-going relationship, then continue checking on who you are dealing with. Ensure they have the funds necessary and the capability to deliver what is on offer.

There are examples where people have gone to extreme lengths to obtain investment money. In some countries this has gone so far as taking over oil refineries for the day, changing the signs and laying on VIP visits of investors. If it is too good to be true, then it probably is.

group at table with laptops


Over the years enhanced due diligence has found out fake people, fake documents, fake companies, fake funds, fake websites, fake bank accounts and yes even fake banks.

The list goes on. This is a timely reminder to be careful. Remember enhanced due diligence does not have to be complicated and may save your clients a lot of anguish.

Martin Dubbey
Martin Dubbey

Managing Director and founder Harod Associates Limited

After a career in UK law enforcement, Martin Dubbey founded Harod Associates in 2010. The company provides due diligence, asset-tracing and support services, making use of the latest technology to underpin operations. Martin has specialised in the use cyber of investigation techniques to speed the process and accuracy of due diligence enquiries.