Frauds Aimed At Businesses Can Take Many Forms

As a professional fraud investigator, I can say that I have seen all kinds of frauds throughout my career. Likewise, many people have tried to commit fraud against me, especially while eagerly traveling the world. So I would consider myself to be pretty astute in these matters.  But even the astute can be challenged.

As a business owner and a due diligence specialist, I know that we have to trust the people we are doing business with …. to some extent.

We trust that they are telling us the truth, that they really do want our services and / or products and they are willing to pay for them.

And if we have aptly employed our due diligence procedures, then we have already vetted our potential new client to verify their legitimacy, purpose and perhaps even their credit history. But how do we protect ourselves when by all accounts, it looks like we entering into a legitimate relationship with a new client?

A few years ago, we were approached by a European investigation firm requesting our services in Canada. According to them, they were working on a multi-jurisdictional fraud case and needed an investigator in Canada to assist them.   Prior to commencing work with them, the company was thoroughly vetted and everything check out. Of course what we didn’t know then, was that this company had been set up and licensed as an investigation agency by former law enforcement personnel (or individuals impersonating them) for the sole purpose of committing fraud.

In order to commence this complex investigation, a substantial retainer was requested and received.   The money came and was quickly deposited however within a few days, the investigation had been cancelled. The client then requested a partial refund as per our contract.

Weeks of back and forth discussions initiating the contract was followed by a short two sentence email cancelling it. Red flag # 1.

We agreed to refund the money once the cheque had cleared. For those of you that don’t know, a cheque has not cleared just because funds have been made available in your bank account. It can take anywhere from 2-4 weeks for a cheque to clear through the international banking system.

Shortly after advising the client of this, we were told that the investigation was back on. Only now, the investigation budget had doubled and they wanted to send an investigator to Canada to assist us. Red flags # 2 and # 3.

For the investigator to receive an immigration visa, he needed an engagement contract. Once in Canada, he would pay the full amount of the investigation up front and in cash. Red flags # 4. By now, it was clear what was going on.

Lucky for us, we had established fraud prevention procedures to follow.

But how many companies wait the full clearance period before issuing refunds? Or get caught entering into engagement contacts that are then used to secure immigration visas? Or worse?

Companies are at risk of being defrauded just by being open for business. Even with the best due diligence program in place, fraud can happen. So don’t stop there. Protect your business from unintended harm by developing and implementing a comprehensive set of fraud prevention policies.

How can you make good decisions without good information?

The other day, I had a call from a friend.  He wanted to know how to conduct a due diligence on a company that he wanted to invest a substantial sum of money with.  He gave me the company’s name and the name of the individual that he was dealing with.  That’s all he had.   After a few inquiries, I determined that the company had only been registered a month.  The administrative address for the company was a post office box and there was only and director – lets call him John Smith since his real name was almost as common as this one.

After many, many hours of research and utilizing almost ever resource at our disposal, we were finally able to identify John Smith,  the business owner.  Subsequent inquiries revealed John Smith’s involvement in a long list of bankrupt companies, on-going civil cases and a number of IRS / tax related cases and liens.  Definitely a guy with a questionable business capabilities.

Since this request came from a close friend, I called him as soon as I had put all the pieces together.  Much to my surprise, and it takes quite a lot to surprise me these days, my friend had gone ahead and invested his money with John Smith less than 6 hours after making the initial call for help to me.  He said he didn’t want to miss out on  this “once in a lifetime opportunity”.

Needless to say, he is now trying to get his money back from John Smith.  He also graciously agreed to let me tell his story here in the hopes that others will think twice and do their due diligence prior to making major investments or business decisions.