Tough times boon for investigative services

PUBLISHED : Wednesday, 05 May, 2010, 12:00am
UPDATED : Wednesday, 05 May, 2010, 12:00am

The global financial crisis has been a windfall for those involved in uncovering corporate skullduggery.

Requests by companies for fraud probes has doubled over the past two years as tough times focus attention on losses from illicit activity, according to Tadashi Kageyama, a senior managing director and head of investigation at Kroll's Asia division.

'The demand for fraud investigation and [investigations involving] commercial disputes is huge,' said Kageyama, noting that when economic conditions were buoyant, company executives were busy expanding and often neglected potential fraud within their company. They argued profits could offset any losses incurred by fraud.

'When business is doing well, companies tend to pay less attention to irregularities as they want to move things forward and not spend time and effort checking areas of possible fraud,' he said.

'But during an economic downturn, executives emphasise costs and operations much more. They check all the details of an operation, which helps identify suspected fraud conducted by staff or business partners.'

Kageyama said that when the market was up, investment bankers and investors focused on securing deals and paid less attention to due diligence. But when the market takes a downturn, bankers and investors were more cost-conscious and demanded background checks on business partners and acquisitions targets.

'All of these factors boost demand for commercial investigative services,' he said. 'This will continue over the next few years because many overseas companies are eyeing expansion in China and other emerging markets.'

Regulators around the world are also stepping up efforts to tighten controls after the financial crisis. That has helped to boost demand from companies that have to check their internal control system and anti-corruption measures to make sure they are complying with new law requirements.

Violet Ho, the managing director of Kroll, said demand from investment bankers for due diligence on companies seeking to list on the mainland was another area of business for the firm.

Carrying out investigations on the mainland was challenging as the country was vast, meaning investigators needed a broad network of sources to cover all the areas of enquiry, she said.

Kageyama said Kroll searched publicly available sources of information to glean relevant information and also used their own sources.

'Sometimes, we have to send in undercover agents to the networks associated with the companies being investigated to collect information,' he said. He said the most challenging aspect in uncovering white-collar crime was the fact that the companies did not always want to hand over the wrongdoers to law enforcement.

'In some cases, the companies just want to move on and simply dismiss the staff involved.

'If such attitudes do not change, we are only hiding the problems and will see the same frauds repeated again and again.'