Truth or Dare? 

What are you willing to risk in conducting executive background checks?

As many know, truth or dare is a popular social game, especially among children and adolescents. Two or more players are given the choice to either answer another player’s question truthfully, or perform a “dare,” chosen by their opponent.

Neither the question, nor the dare, is known in advance, and switching from one to another afterwards is not allowed. Players must answer the question or accomplish the dare, and quitting to avoid one or the other is not permitted.

While it can be an innocent game, there are many stories of the possible dangers in playing it, running from dangerous, and sometimes deadly stunts, to oversharing and humiliation. So, when it comes to business, do you pick truth, or dare?

Why do some businesses risk their company’s reputation, finances, public trust, and stock values by not seeking the truth about those working with them or for them? Why don't companies take a closer look at suppliers and conduct executive background checks and basic due diligence on those suppliers?

Even when a background check is performed, is it only done initially when on-boarding? Events change. Circumstances intervene. The same people may not be making the same choices. What about due diligence investigations before M&A proceedings; making sure the executive team has no serious issues or the business itself? And board members? As many as 20% of executives have serious issues in their backgrounds; most of these are not revealed through routine employment type background checks.  This si where due diligence becomes essential to retaining the best executive teams; free of corruption and other issues.

Perhaps the issues Goldman-Sacs is facing with their alleged involvement in the recent 1MDB scandal —possibly the largest global scandal in history— could have been mitigated if they looked more closely at the backgrounds of some of their top executives.

What is the IMDB Scandal?

1MDB, or 1Malaysia Development Berhad, was a state-owned development firm focused on driving long term-economic goals for the nation. It was headed by then Prime Minister of Malaysia, Najib Razak.

A lawsuit filed by the United States Department of Justice (DOJ) in 2016 alleges up to US$3.5 billion was stolen from the 1MDB fund and spent on lavish lifestyles by several high-level officials and their associates on luxury real-estate, a yacht, rare works of art, extravagant jewelry, and funding the Hollywood move, “The Wolf of Wall Street,” which, ironically, is about fraud. The ongoing case involves prosecutions across multiple countries.

Goldman Sachs Involvement in the 1MDB Scandal

Officials from 1MDB met with Goldman Sachs in 2012 to discuss a bond deal. According to Reuters, between 2012 and 2013, Goldman raised US$6.5 billion in three bond sales for 1MDB and earned almost US$600 million, or 9% of the total, for the three deals, a commission said to far exceed the normal 1-2% fees expect by a bank in aiding bond sales. The Malaysian government is seeking “well in excess” of the allegedly misappropriated US$2.7 billion, and the fees earned by Goldman Sachs. In 2018, the Malaysian government filed criminal charges against the three of the bank’s units in connection with their role as underwriter and arranger for the bond deals.

In their filed charges, they state that Goldman Sachs had made “untrue statements and omitted key facts in offering circulars for the bonds it sold for the Malaysian state fund 1MDB.” The bonds themselves, in 2014, once worth US$12billion dropped to junk status as questions arose about the status of the funds.

In 2016, the FBI began investigating ties between Tim Leissner, one of Goldman Sachs’ top executives and former Prime Minister Najib Razak. Leissner stepped down from Goldman Sachs after being put on leave by the company and has since pleaded guilty in the U.S. to conspiracy relating to bribery and money laundering. The DOJ states that Leissner paid “bribes to various Malaysian and Abu Dhabi officials…circumventing the internal accounting controls of the Financial Institution while he was employed by it.” Leissner was ordered to forfeit $43.7 million for his criminal activity. Allegedly, Leissner used bribes and connections to Malaysian officials to further interests of Goldman Sachs in the Malaysia.

Leissner was not the only executive charged FCPA violations in the 1MDB scandal. Ng Chong Hwa, also known as, Roger Ng, another former Goldman Sachs executive is also being charged with money laundering.

The Malaysian government has also charged Leissner and Ng with corruption, money laundering, and violating anti-bribery laws. They are indicting, as well, former 1MDB employee Jasmine Loo Ai Swan and fugitive Malaysian financier, Jho Low. Leissner is cooperating with the FBI. The central bank in Singapore has issued a lifetime prohibition against Leissner, and Leissner could face a 10-year prison sentence under the Malaysian-filed charges.

Goldman Sachs was charged in a lawsuit, in November 2018, by the International Petroleum Investment Company (IPIC) and subsidiary Aabar Investments. The court summons states they are seeking “damages and other appropriate relief for the significant financial exposure and loses …suffered as a result of fraudulent and illegal acts,” and accuse Goldman of international conspiracy to embezzle millions from 1MDB. Goldman Sachs is contesting the claim. Billions of dollars in loans issued by 1MDB and arranged by Goldman Sachs were guaranteed by IPIC who claims the fund defaulted on $1.1 billion in repayments. Malaysian’s prior government agreed to repay the UAE investment, but the new Malaysian government has challenged settlement.

In December 2018, Malaysian authorities filed criminal charges directly against Goldman Sachs alleging involvement in a US$2.7 billion money laundering conspiracy. While Goldman claims the charges are “misdirected,” investment analysts suggest that confidence in the bank could once again be shaken after years spent rebuilding its reputation after the financial crisis.

Goldman Sachs stock value has fallen twice in lieu of the 1MDB scandal and Malaysian criminal charge filing. Down 34% in December 2018.

As the 1MDB scandal continues to unfold, Goldman Sachs has taken multiple hits due to the alleged criminal behavior of some of its top executives.

“In line” with Broader Culture?

Former Goldman Sachs’ executive Tim Leissner is cooperating with the U.S. government, according to court unsealed documents.

In a guilty plea in August 2018, according to New York Times, “[Leissner’s] decision to hide his actions from Goldman’s compliance department was ‘very much in line’ with a wider culture at the firm.” He told Judge Brodie, “I and several other employees of Goldman Sachs at the time also concealed that we knew that Joh Low was promising and paying bribes and kickbacks to foreign officials to obtain and retain 1MDB business for Goldman Sachs.” According to Leissner’s charging document another Goldman- Sachs’ executive was described as co-conspirator in the bribery scheme. People familiar with the matter, identify the person as Andrea Vella, who was suspended from Goldman Sachs a week earlier.

The New York Times further notes “Goldman had sought to portray its role as that of a victim of the actions of Mr. Leissner, whom the bank had cast as being a rogue employee.”

Truth - How do You Protect Your Business?

While the DOJ and cooperating, foreign authorities sort out the whole 1MDB scandal and piece together all the pieces, Goldman Sachs took multiple hits. As of a few days ago Goldman announced losses related to ongoing lawsuits could potentially be in excess of its US 1.9 billion reserve for legal matters. Reuter’s notes, “The bank added $844milion to its legal and regulatory provisions last year, more than four times what they set aside in 2017.”

But while you may or may not have the spending power or international reach of Goldman Sachs, it doesn’t mean you are safe from possible internal corruption or safe from the hazards of potential less than above board business partners. And any loss of related to FCPA violations or criminal activities is a cost too high. So, how can you protect yourself and mitigate any potential issues for your business? By knowing the truth.

What This All Means for You

While not all FCPA violations are intentional, executives are not released of responsibility if, unknown to them, someone within their organization is involved in a business partnership or acquisition in violation of the FCPA.

Cautionary Statistics

  • Average FCPA fines 2015: $88m
  • 20% Executives have serious “no hire” issues
  • 80% of M&A deals fail within 2 years
  • Bribes are paid through 3rd Party intermediaries in 90% of FCPA cases
  • 35% Global Supply Chains have bribery/corruption issues
  • Reputational damage costs = millions

Recommended Practices

All companies should implement a strong compliance program, exercise regular executive due diligence and board due diligence, and perform company due diligence prior to any M&A proceedings.

Preventative practice is best.

Ongoing transparency should be the norm, in addition to creating a built-in and on-going  FCPA program within their organization and partnering with an expert, third-party global security and risk management firm.

It is vital to procure the expertise of an external and impartial firm whose business is to perform deep due diligence investigations at both the individual and company level with global-spanning resources. Lack of a due diligence program or relying solely on routine (limited) background checks exposes a company to issues ranging from money laundering, fraud, racketeering, bribery, and numerous other malfeasant acts.

The following investigative practices should be provided by the investigative firm:

  • Know the types of risks likely in your industry
  • Have a strategy to recognize and prevent likely issues
  • Communicate this to your domestic & in-country teams
  • Require routine financial audits
  • Conduct effective due diligence
  • Reassess annually & monitor for continuous changes
  • Rank risks according to your business
  • Identify transaction risks for your company & industry
  • Understand the type of risks prevalent in the target high risk market
  • Have a strategy to recognize and prevent likely issues
  • Communicate this to your domestic & in-country teams
  • Require routine financial audits
  • Conduct effective due diligence
  • Reassess annually & monitor for continuous changes

All Executive Background Check Programs are Not the Same - What You Need to Know

The most common type of background checks run on executive hires are routine pre-employment type background checks. These searches are usually performed through one or more multi-jurisdictional databases containing vast collections of accumulated data. Characteristically, these checks are limited to a 5-component review of:  education verification, social security validation, employment verifications, criminal records, address verification, and sometimes credit history. These types of background checks are the same as those performed on any level of employee. Such a limited background is not suitable at the executive level as many serious issues will be missed completely.

“Statewide” and “nationwide” criminal searches, typically done in routine background checks, usually miss up to 75% of all criminal convictions. Many people think that there is a database containing all information about a person’s background. This is not true. Additionally, records still need to be retrieved in person to assure the correct information is reported about that specific person, rather than someone else with the same name.  Since criminal records do not usually contain a person’s social security number, they must be searched using date of birth.

Standard background checks are often inexpensive to conduct and quick to turn around. But relying solely on them is especially dangerous when hiring corporate executives.

There are many issues with routine background checks; including: widely varying quality and availability of information, bad search criteria resulting in no results found when there is information, and results being returned on persons with the same or similar name being mistaken for the searched candidate. The standalone use of national databases for background checks may, also, not be in compliance with the U.S. Fair Credit Reporting Act and state laws too.

Standard background checks deliver incomplete “snapshots” of an individual’s information in the public records domain.  By contrast, executive due diligence backgrounds examines over 30 different components of public record data, a deep internet search, and in-depth reviews of news sources and media.

Some of the components looked at in executive due diligence are: federal criminal history, financial and legal issues, reputation, misrepresented education, different identities covering up other serious issues, behavioral history, civil litigation matters, conflicts of interest, and adverse or undisclosed matters.

This is not to say routine background checks are not important. But what it does mean is they are not sufficient in uncovering all the critical information to protect a company and its board from fiduciary exposure and possible shareholder law suits if adverse information comes to light after hiring, or after an M&A deal has closed.

High quality executive background checks can reveal vital information, undisclosed in a routine standard background check. Things that could be uncovered included: signs of malfeasance, misconduct (with or without criminal conviction), litigious behavior, media and/or social media negatives, IP theft, interstate bankruptcy, hidden aliases hidden business and board level involvement, undisclosed business ownership, significant numbers of name changes, manslaughter, murder, signs of misconduct, bribery, racketeering, con-artistry, financial pressures, money-laundering, and other negative matters.

Good executive background checks also include reference interviews. In the hands of a highly trained interviewer, they can reveal persistent character and behavior patterns indicative of various issues including corruption.

When should a company do an executive due diligence background?


  • Hiring a new executive
  • Acquiring a new business subsidiary (Mergers & Acquisitions due diligence)
  • Contracting with third party business parties and agents globally
  • Selecting new board members
  • Screening supply chain company executives
  • Routinely on their executives, and board members

Should investors do executive background checks on the executive and board members of a company they want to invest in? The latest news with 1MDB is proof positive you should.

Dare. So What are You Willing to Risk?

When it comes to business, you shouldn’t play games. What decision will you make when you choose how you protect your company and business interests? Will you pick regular executive background checks for high-level employees? Board members? Potential business partners? Do you know who the other players really are? Or, who really is on your team?

Is the firm doing your background checks doing a deep enough dive? Do they give you enough information? Do they protect against false-positives and false-negatives?

So, truth or dare? The truth can save your company money, time, reputation, and even its future. Is the money you save by not setting up a strategic in-depth due diligence program worth the money it it might cost you if you don’t? Will you choose to know the truth?

Pick truth. I dare you.

Know your Customers. Know your Business Partners. Know your employees.

Protect your Company.


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