Times are particularly litigious and reputation can rise or fall with a new scandal or questionable behaviors by key executives. The global economy has opened up a world of opportunity: new talent, supply chains, customers, locations, acquisitions, and resources. In the advent of all this, navigating between opportunity and risk has become more perilous and the need to conduct executive background checks on executives and business partners is crucial in protecting your company’s reputation and reducing your Board’s fiduciary exposure.

Background Checks and Executives

Hiring the right executive is extremely important to a company and numerous factors are considered, among them previously held positions, reputation of companies worked for, and education. With the rise in corporate scandals most businesses acknowledge the need for some type of background check.

Many companies, however, are not aware of why it is critical to conduct executive due diligence, relying instead on professional references, industry reputation, and on new executive hires having disclosed all pertinent information. Some even believe that the current or prior company the executive worked for has already performed the necessary background check, especially if it is a well-known or branded company. While they may default to a routine background check as a matter of course. A simple background check cannot find most of the issues you need to identify to protect your companies and employees.

While some of this information may be verified through a routine background check, these standard background checks miss many things that would be uncovered in an executive due diligence investigation.

Due diligence investigations, unlike routine background checks, are designed to detect hidden and undisclosed information not readily available in standard background checks. About 20% of executives do not check out well, and 10% of executives have serious issues that would preclude them from further hiring consideration.

Recently, Moderna hired a new CFO Jorge Gomez, who worked for only a single day, before Moderna’s Board of Directors became aware that his previous company, Dentsply Sirona, was undergoing an internal audit into possible security reporting violations that had been reported to their Board of Directors by previous and current Dentsply employees two months prior. This investigation includes potential inappropriate actions by current and former Dentsply executives. Moderna maintains that they “are confident that Moderna conducted all appropriate due diligence on this matter prior to the hiring of Mr. Gomez, based on available information,” yet an executive due diligence investigation should have uncovered this. Moderna is out $700,000 in severance pay to the 1-day CFO, the cost in onboarding, and have taken damage to their reputation.

While it is not public knowledge what type of employment background checks Moderna employed, some companies rely on routine background checks at the executive level believing that they have conducted an executive due diligence investigation. These are usually low-grade employment background checks conducted by Consumer Reporting Agencies, not investigative firms.

Unlike these routine background checks, executive due diligence investigations evaluate relationships to foreign officials, criminal history, financial and legal issues, civil litigation issues, relationships with other companies and entities, reputation issues, shell company involvement, evidence of fraud, signs of money laundering, financial impropriety, conflicts of interest, drug, alcohol and human trafficking, signs of money laundering, financial impropriety, conflicts of interest, anti-competitive behaviors and numerous other serious issues.

These executive background checks are part of a company’s first line of defense in protecting themselves and the Board of Directors from serious legal issues down the line, reputational damage, and even jailtime if something is uncovered later. Foreign Corrupt Practices Act (FCPA) investigations and fines have increased over the last few years and the U.S. continues to partner with numerous international agencies to examine acts of corporate malfeasance throughout the world. Executive due diligence on all executive hires and partners is a key step in a company protecting fiduciary exposure. Executives are not cleared of responsibility if someone within their organization is involved in a business acquisition or partnership in violation of the FCPA, at home or abroad, even when they are unaware of it.

What can be socially, and sometimes legally, acceptable in one location, may in fact, be a legal issue in another. Due diligence investigations help prevent you from forming a partnership with bad actors and from hiring or acquiring them.

The Cost of Neglect: How Skipping Due Diligence Background Checks can Hurt Your Business

Neglecting to conduct due diligence background checks on executives and business partners can come at a high cost for your business. Without proper vetting, you run the risk of hiring individuals who may have a history of criminal activity, financial improprieties, or other red flags that could ultimately harm your company’s reputation and bottom line. One way to avoid these risks is to conduct thorough executive background checks that include a criminal background check and a credit report review.

A criminal background check can help uncover any criminal history an executive or business partner may have, including arrests, convictions, and even pending charges. This information can be critical in assessing the person’s character and potential risk to your business. If you skip this step and bring on someone with a criminal history, it could lead to potential legal issues, damage to your reputation, and loss of business.

Similarly, reviewing an individual’s credit report can provide valuable insight into their financial history, including any previous bankruptcies, foreclosures, or liens. This information can give you a sense of the individual’s financial responsibility and stability, which can be particularly important for positions of high authority within your company. Skipping a credit report review could put your business at risk of fraud or other financial improprieties that could ultimately harm your bottom line.

Neglecting to conduct due diligence background checks can result in serious consequences for your business. It is important to conduct thorough executive background checks that include a criminal background check and a credit report review. By taking the time to properly vet your executives and business partners, you can avoid potential legal issues, protect your reputation, and safeguard your bottom line.

Picking the Wrong Partner

Executive due diligence should be conducted when forming new business partnerships. Even a company’s Board of Directors can be fooled by bad actors at executive levels, as occurred with the high-profile Theranos case in the situation where both the CEO, Elizabeth Holmes, and COO, Sunny Balwani, misrepresented to their board and shareholders for years and were accused of defrauding investors and customers. Holmes was found guilty of fraud earlier this year. The Theranos Board of Directors was not the only ones taken in by Holmes. The Boards of Walgreens and Safeway also were. They entered into partnerships with her, without performing an executive due diligence background check. Walgreens invested and lost around $140 million. The partnership with Safeway cost the supermarket chain $400 million.

Uncovering Hidden Risks: The Case for Conducting Due Diligence Background Checks on Executives and Partners

Conducting due diligence background checks on executives and partners is essential for uncovering hidden risks that could put your business at risk. Background screening is a critical step in the hiring process, and an executive background check can provide valuable information that will help you make informed decisions about who you bring into your organization. A comprehensive background check can include an examination of an individual’s employment history, education, and criminal record, among other factors.

In addition to uncovering potential criminal records, a background check can help to verify an individual’s work history and education, ensuring that they have the qualifications and experience they claim to have. This can be particularly important for executives and partners, who may be entrusted with high-level decision-making responsibilities within the organization. By conducting a background check, you can gain valuable insights into an individual’s character, ethics, and professionalism, helping you to make informed decisions about who to bring into your organization.

In today’s highly competitive business environment, it is more important than ever to conduct thorough due diligence background checks on executives and partners. By taking the time to conduct a comprehensive background check, you can uncover hidden risks that could put your business at risk and make more informed hiring decisions. Whether you are considering hiring a new executive or entering into a partnership with another company, a background check can help you to protect your business and make better decisions about who to work with.

Reputational Damage

Opinions by investors, clients, or even the general public can have a heavy impact on a company. Approximately 25% of a company’s market value is directly attributable to its reputation, and 41% of companies that experienced a negative reputation event reported loss of brand value and revenue subsequent to damage to their business reputation. Executive hires and business partners can also have a negative effect on reputation by their actions and behaviors both on and off company time, matters that can be revealed through executive due diligence, but which would be missed in routine background checks.

Executive due diligence should be conducted on every new executive hire and acquisition of business partners, on a routine basis annually or every few years as events and people’s lives change. Standard background checks do not offer sufficient protection, so executive due diligence investigations need to be a standard practice in well managed companies.

Due diligence when comprehensive provides an extra layer of fiduciary protection for the board; this is even more important if any serious issues occur subsequently, and the company needs to show regulators such as the DOJ or SEC that they conducted due diligence to protect the company’s risk exposure.

Protecting Your Investments: The Importance of Conducting Due Diligence Background Checks on Business Partners

Investing in a business partner can be a smart move for your organization, but it can also be risky if you do not conduct the proper due diligence. One key step in protecting your investments is to conduct a thorough executive background check on any potential business partners. This background screening should include a comprehensive background investigation that covers an individual’s employment history, education, and criminal record, as well as any other relevant factors.

By conducting an executive background screening, you can ensure that you are partnering with individuals who have the experience and qualifications they claim to have. It can also help you to verify the authenticity of their credentials and work history. The verification process can uncover any discrepancies in an individual’s resume, which can be an important red flag when considering potential candidates. This can help you avoid the risk of partnering with individuals who may not be a good fit for your organization.

In addition to protecting your investments, conducting due diligence background checks on business partners can also help you to protect your reputation. If you enter into a partnership with an individual who has a history of unethical behavior or criminal activity, it could damage your organization’s reputation and hurt your bottom line. By taking the time to conduct a comprehensive background check on potential business partners, you can avoid these risks and ensure that you are making the best possible decisions for your organization.

What Is An International Background Check?

Background checks are normally conducted on employees to check the truthfulness of the information the candidate or employee is providing to their prospective employer. International background checks are similar to standard background checks except they include one or more components which require checking the person’s background or history in another country. This includes both staff, supervisors, managers and executives.

Background checks are also important to conduct on non-employees such as consultants, vendors and other third party agents who may provide services to your company but are not technically employees.

Unfortunately there are no global databases that can be checked, instead we need to check each country individually. Different processes and waivers or release forms may need to be signed depending up on the country involved.

It is important for companies to check whether the employee has any significant issues in their history such as sanctions violations, criminal convictions, or do not have the qualifications they are claiming which could disqualify the person from employment. International background checks may take between one to three weeks to complete, depending upon the country or countries involved and how the source records are available. In some countries degree records must still be manually checked and this may take longer than one week, in other cases the GDPR personal data privacy regulations may require contacting the correct person responsible for checking the records before that specific information can be verified.

Many people work in different countries for employers, or may be assigned to work in a country and decide to stay there later, or to immigrate to that country permanently. If you only check that person’s background locally, you may miss important indicators about that individual, if they have misrepresented their education, employment history or professional qualifications including professional licenses.

Some college and university degrees awarded in other countries may have a less rigorous degree process than in the USA and most of Europe. Degree fraud is unfortunately very common. They may not have been awarded a degree, or multiple degrees that they have claimed. This happens very frequently; as often as 25% of the time.

In some countries the university will require the person’s class transcripts to verify the degree earned.

Similarly the individual may not have been employed by the companies they have claimed on their resume or CV. The same may also be the case for professional licenses.

It is very important to check for these items: education verification, professional license verification, and employment verification in almost every country in the world. Universities go to great lengths to prevent degree fraud and are typically very supportive in verifying degrees earned.

Criminal convictions in countries where these can be obtained through public records. In EU countries and the United Kingdom criminal records are not available directly from courthouses for employment purposes. Companies that claim they can access these international criminal records on your behalf are misrepresenting what they can legally obtain.

Reference interviews should be considered especially for more senior level staff, managers and executives. These should be interviews involving questions requiring more than a Yes / No answer to be effective.

Conducting an international background check is a basic step in conducting due diligence on prospective hires and business relationships. Deeper levels of background due diligence should always be conducted on executive level hires.

Conducting international background checks must be conducted legally and in compliance with local, state, federal, and international privacy laws including the GDPR. It is important to work with a company that specializes in this type of work to avoid legal consequences for your company.

While employers can conduct their own background checks for free, here are some considerations in making this decision:

  1. it is important to understand the processes involved.
  2. The sources of information needed must be clearly identified. Using the wrong sources can land your company in hot water with international regulatory agencies.
  3. Maintaining strict security of the personally sensitive data being verified.
  4. Ensuring the cybersecurity needed to transmit and store sensitive personal data is complex today.
  5. Make sure your company has data breach insurance in the event of a cybersecurity attack.
  6. Checking the backgrounds of the Human Resources and other staff assigned to these tasks, before they start.
  7. Making certain that your staff know and implement legal and compliance frameworks involved in requesting and verifying information in different countries.

Streamlined processes are key to avoiding unnecessary delays.

  1. International Education Verifications: Degree fraud is unfortunately very common globally, as often as 25% of the time. Checking that a prospective employee was awarded a degree, or multiple degrees, that they have claimed is often top of the list of reasons to check an international background.
  2. International Employment Verifications: It is important to know that an employee has actually worked and gained the experience they claim with their prior international employer. In some cases the caliber of the person’s experience may make a difference for a future role at your company. If the candidate or employee has misrepresented their past employment history, or deliberately hides their history there could be reasons for this that are important to check. Con artists often misrepresent their history as do fraudsters. If a person in a key position does have a questionable history it could damage your company’s reputation or as an example make it easy for a new fraud scheme to be established. Identity Theft and financial fraud are extremely common both within businesses and externally.
  3. International Professional License Verification: Validating a professional license for employees in areas such as finance, accounting, medical, FDA, dental, engineering, architectural, and attorneys or solicitors would be important to check.
  4. International Civil Law suits: International civil lawsuits or similar infractions can be very informative, depending upon the issue. Breach of contract suits may be very important in many industry sectors.
  5. International Criminal Convictions: International criminal records should be checked where they are available. It is important for a company to provide a safe and secure work environment for its employees. Not knowing whether a person has a serious criminal conviction history may endanger the lives of coworkers are managers alike.
  6. Social Media Profiles: These should not be conducted by inexperienced individuals, as it can be easy to violate the person’s privacy rights. It is always best to have investigators check these records as we have the ability to triangulate information presented to determine is validity. It is important to verify the information further before taking any action or making a hiring decision. Checking social media profiles in other language adds another step which often requires local language expertise, never rely on a Google translation.
  7. Sanctions violations: sanctions imposed by government agencies may be serious and are essential to check across all countries. There are global databases which assist with these checks today. Hiring employees with certain types of sanctions may have legal ramifications for your company. It is extremely important to have the individual’s full legal name to check these records; partial names or other names the person has been known by may easily yield the wrong results.
There may be many different consequences of not conducting an international background check. For example:

  • International Education Verifications: Degree fraud is unfortunately very common globally. The person may not have been awarded a degree, or multiple degrees that they have claimed. This happens very frequently; as often as 25% of the time.
  • International Employment Verifications: Misrepresentation of employment history is also commonly found. Not checking employment history may leave your company exposed to a person that does not have the experience required to handle the work assigned to them. If the person does not have a professional license, then the degree of exposure for your company may be even higher, for example imagine the consequences of being treated by a medical professional that does not have the necessary degrees, experience or licenses required to perform their work?
  • International Professional License Verification: Validating that the person claiming a professional license has been awarded the license by a professional awarding body: there are hundreds of different licenses such as finance, accounting, medical, dental, engineering, architectural, and attorneys or solicitors to name a few.
  • International Civil Law suits: Checking to see whether or not the person has been involved in civil lawsuits or similar infractions can be very informative. There are different steps involved in many countries to check this information, but should be considered where available.
  • International Criminal Convictions: International criminal records are not available legally in many countries, including the EU and UK. However, where they are available they should be checked. The use of criminal convictions in hiring decisions may also vary by country and in the United States may also vary by state. Working with an international background checking company with experience in understanding these complex regulations is essential today to avoid non-compliance with different laws.
  • Lack of a degree or specific employment experience, caliber of companies worked for, lack of certain professional licenses, some types of civil lawsuits, and criminal convictions may expose your company to the following issues:
  • Reputation Damage. Especially if the negative issues could have been identified before the hire was made.
  • Executives that have a history of misconduct including things like:
    • Harassment and physical or verbal abuse
    • Sexual harassment
    • Physical violence and threats
    • Class actions lawsuits
    • SEC violations
    • Anti-competitive behaviors
    • Theft of Intellectual Property
    • Ongoing lawsuits
    • Criminal convictions
    • Responsibility for a prior employer being sued or fined by regulators
  • Client or stakeholder lawsuits may arise if the person subsequently continues their behavior at your company and causes damage to your company reputation, especially if the stock price is impacted.

There are numerous cases every year of employees and executives who have a history of issues both domestic and international backgrounds that have ended in serious reputation damage for themselves and the companies they represent.

Examples:

  1. FTX: Take a very recent example of Sam Bankman Fried who has been convicted of stealing billions of dollars in a failed cryptocurrency exchange called FTX, and is awaiting sentencing. This is widely considered one of the largest financial frauds in U.S. history. Many companies and individuals who did not conduct their due diligence on Sam Bankman Fried and FTX have ended up losing millions of dollars or even hundreds of millions of dollars.
  2. Yahoo: Scott Thompson, former PayPal President was hired without checking his prior degrees. Although he had an accounting degree he did not have a computer science degree. Embellishing academic credentials is not a good sign for the CEO of a high tech company. Thompson’s misrepresentations cost Yahoo millions of dollars in stock losses and serious reputation damage at a very sensitive time in their company growth.
  3. Intercontinental Hotels Group: According to Forbes, Parick Imbardelli, Head of Asia Pacific operations did not graduate with two degrees that he claimed from Victoria University in Australia and an MBA from Cornell University.
  4. Football Coaches: There have been several examples of football coaches involved in sexual harassment including Kansas Football head coach Les Miles following sexual harassment allegations from a prior university LSU. Also recently Michigan State University fired football coach Mel Tucker for subjecting the university to ridicule, and breaching his contract and moral turpitude. Additionally the President of Spain’s Football Association, Luis Rubiales, resigned after an investigation of his public, unsolicited and non-consensual kiss of Spain’s female soccer (football) forward Jenni Hermoso at the Women’s World Cup final. FIFA suspended Rubiales from all football-related activities for 3 years.
There are many advantages to conducting an international background check.

Verifying the veracity or truthfulness of the information presented on a job candidate or employee’s linked in profile, resume or C.V. is important to avoid fraud and potential for later reputation damage.

Making sure that employees of your company or organization are who they say they are, and are not lying or misrepresenting themselves, their education and their work experience may be vital.

Checking that a new hire does not have adverse behaviors such as sexual harassment or assault, fraud, or theft of a prior employer’s intellectual property, are important items that can be easily checked internationally.

International background checks can help your company prove that they conducted adequate levels of due diligence if a subsequent issue arises.

Deeper levels of due diligence, beyond a simple international background check may offer protections to your company’s board to show fiduciary Duty of Care. See our more in-depth discussion of due diligence investigations here.

This may be particularly important for your company’s board of directors if a stakeholder lawsuit arises as a result of subsequent company reputation damage.

Why Conduct International Background Checks with Infortal Worldwide?

Infortal Worldwide offers global business risk management and security solutions for over 35 years across all industry sectors. We have conducted international background checks and international due diligence investigations in over 160 countries.

We are considered a trusted advisor in the security and investigations industry. Our standards for processing international background checks are the best in the industry. We have no false positives and no false negatives; this is because we have the correct identity of the person before we check their background history.

We will only conduct legal investigations internationally. Of importance there are certain countries where investigations of any type may be considered illegal.

While there are other companies who state they offer fast or innovative solutions; it is important to note that speed may not yield correct results in terms of international background checks: for example there are many countries where records continue to be researched manually and could take longer than one week.

Infortal’s employees are acutely aware of the need to follow specific steps when conducting international background checks, especially when complying with the EU’s General Data Protection Regulation requirements which are designed to be fair and transparent, to protect personal data, offer individuals the right to be informed, and the right to be forgotten amongst other key principals.

Compliance with international regulations is important as the international fines can be as high as 4% of a company’s annual revenue.

Additionally, security tools such as encryption of data are essential to prevent damage in the event of a cybersecurity issue or data breach.