In the world of international due diligence, add these letters: KYI, or know your investigator

Global banks are under more pressure than ever to accurately risk-rate the potential financial crime futures of their current or incoming clients, but they don’t always have trusted local staff to do that, resulting in the need to rely on foreign private investigators.

In the zeitgeist of financial crime compliance circles, that overarching exercise is commonly referred to as the “risk assessment” and is typically made up of an alphabet soup of steps under the rubric of customer due diligence (CDD) and know-your-customer (KYC) requirements, in all an attempt to predict the likelihood of a customer to have a brush with illicit money laundering.

But because even large banks don’t operate everywhere, there can be instances where a new or existing client must be investigated in the area they do the most business, or have the most risk to be tied to criminal or terror groups, so the financial institution must reach out to local private investigative, due diligence or consulting firms to get an on-the-ground view of activities.

One expert, though, believes private investigators broadly should be quizzed more by the financial institutions and companies hiring them as in many instances there are few professional requirements, academic prerequisites or even regional licensing standards needed to become a private investigator.

“Everyone is familiar with the mantra of ‘know your customer’ – but what does not appear to be quite as well known is that there is a need to ‘know your investigator,’” or KYI, said Peter Gallo, an international financial crime consultant.

In fact, just go to Google right now and type in the letters “KYI” and phrase “know your investigator,” and the world’s premier search engine draws a blank.

These kinds of far flung investigative operations are more in demand as banks are under more scrutiny globally to accurate risk rate customers and businesses for possible future criminal activity, and a bank may want to open an account for a business with the operation’s headquarters in a foreign locale the bank has no branches or presence.

The danger of unethical or “fake investigators” was highlighted in a December report by the Associated Press that found many of the private investigators hired by Western firms to uncover Chinese counterfeit goods were “themselves manufacturing or selling counterfeit versions of their clients’ own goods.”

As well, these investigators “doctored documents, fabricating raids that never took place,” and colluded with factories to make counterfeit goods they could “seize” and present to their Western bosses for payment.

Though these were privately employed investigators paid to uncover counterfeiting operations, the lesson on the importance of thoroughly vetting a foreign investigator, such as those banks would use for customer risk ranking purposes, is brought into stark relief.

“The problem is in most countries there are no licensing requirements, as you would when you have related to creating a financial institution,” Gallo said “So for anyone who wants to open up a business as a private investigator, if you can afford a mobile phone and perchance a website, you are good to go.”


Illustration depicting an illuminated neon sign with a private detective concept.

Here are some of the questions banks and companies can ask when working with a foreign private investigating or consulting firm when trying to acquire customer due diligence details and determine financial crime risk:

  • Does the country, state, region or locality require a license and does the firm have the required licenses?
  • If the firm has the required license, or licenses, have any of these licenses been revoked at any point and, if so, what were the reasons and have those issues been addressed?
  • Does the firm have a background itself of public or private complaints or has itself been investigated for some impropriety?
  • Does the firm have any investigators with real-life investigative experience, such as being part of a local, state or federal law enforcement group, including police or the US Department of Justice, Federal Bureau of Investigations or Central Intelligence Agency?
  • Have any of the firm’s investigators taken part in any relevant training sessions on critical information gathering methods, such as on open source investigative techniques, commonly referred to as open source intelligence (OSINT)?
  • Is the firm associated with any known local or international public or private associations, particularly if the membership is by invitation only and requirements include vetting and a degree of mutual professional acknowledgement?
  • Does the firm have a “comfort zone,” where it has done investigations in certain regions with similar laws and practices, such as Asia, Europe or Central America?
  • Does the firm have actual offices in the region it is investigating or does it contract with third-parties already there? If so, what are the qualifications, history and ethics of that third-party group?
  • While it’s clear that companies using “private” investigators want to keep their association with such firms private, does the investigative firm have a select group or references or testimonials from past customer or companies that a bank can review or query for themselves?

Foreign data gathering strewn with obstacles

Another key piece of the equation to understand is that what are easily attainable bread-and-better tenets for anti-money laundering (AML), CDD, KYC and such, can get significantly more difficult when you go outside the United States, he said.

In the US, certain records are mostly maintained at the country level, so a simple Google search or basic background check can turn up a “guy living in Wisconsin, with DUIs in Alaska and property in Hawaii who was divorced in New York,” he said, noting such as search could easily uncover dozens of addresses even if they are strewn about the country.

But for many countries, fragmented by different regions, laws and records rules, “you simply can’t do that” and get information through a simple Internet search, Gallo said.

“If I am in the Dominican Republic and I am looking for property against a guy and I was told he has property in Thailand, I might have to send foreign investigators to 71 different offices to search records manually,” he said, adding that having to go with an unknown foreign firm has pitfalls of its own.

“When I am doing that, I am relying on so-called investigative firms that may have no professional ethics at all,” Gallo said. “How do I know someone actually went to that local records office and looked? Or did they just spend the weekend with their girlfriend and sent me the bill? You would be surprised, but there is a lot of that.”

At times, it can be difficult to send a foreign investigator into a region they would stick out because they would “miss the ticks in the language and subtleties of what people are trying to tell you. You can’t just put someone on an airplane and send them bungling around in a foreign country without knowing the cultural sensitivities and legal practicalities.”

He knows of several instances where private investigators in a foreign land unfamiliar with the laws of the land ended up getting arrested as they were bedecked with all manner of undercover filming and recording devices, giving the impression they were spying on the local regime practices, rather than just a citizen.

One investigative trick Gallo has used is to find out the location of a US consulate in the foreign jurisdiction, if it has one, and find out what is the name of the security company in charge of guarding the consulate. That company in many cases has a good sense of who are the most risky local customers from a threat perspective and could be a lead or point-of-contact for questions about regional laws and practices.

Personal foibles can lead to professional frustration

Key to risk ranking the investigator is attempting to get a sense of not just their professional, but personal reputation.

Gallo, for instance, noted that he once found out someone claiming he was an investigator had public battles with mental illness, often complaining about certain jobs in the local pub, to the point that a social worker had to go to the person’s house every day to ensure they were taking their medicine, he said.

It’s also imperative to find an investigator that knows the difference between “intelligence,” which is often built on surveillance and gut instincts, and “evidence,” which is something more solid and concrete, such as phone, email or bank records depicting more clearly illicit activities, Gallo said.

For instance, some local investigative firms can be easily wooed by the almighty dollar to give a skewed assessment of a potential target, he said.

Gallo said he has direct knowledge of a firm in Asia that when tasked with investigating a certain client, actually knocked on the person’s door and told the individual, “we have to do this investigation into you, so how much will you pay us to tell your side of the story.”

The supposed investigative firm had no qualms about “telling the dumb foreigners anything you want us to tell them,” he said. “It comes down to the question of do you trust the guy you have on the ground” in the foreign country.

“It boils down the integrity, and to a lesser extent, credibility,” he said. “It is not reasonable to expect every investigator to be competent at everything – but I don’t have a problem with that; selecting the right investigator for the job is a management function, so you get the best person for the job.”

What is more important, however, is the integrity issue, he said.

“I do not care how good a particular investigator may be at getting information, if I have reason not to trust him; that is a show-stopper,” Gallo said. “Professionalism and integrity are non-negotiable.  From the management point of view, it is a quality control issue, and that is vital.”

For instance, if they try to get information in an illegal or unethical manner, such as bribing someone to get details they would not normally have access to, such as bank or telephone records, that could result in the individual or firm employing him getting a black eye.

“Integrity is fundamental,” Gallo said. “When I have to put part of the success of my client’s investigation in the hands of a third party; there is a huge investment in trust there. I do not want to make a mistake.”