The Value of Background Checks and Due Diligence

In this episode of Integrity Insights, Filip Brokes is joined by Verena Horne (Director at Berlin Risk) and Davids Alksnis (Consultant at Berlin Risk) to discuss the fundamentals of background checks and due diligence investigations.

The conversation provides a practical overview of how integrity due diligence works in real-world scenarios, why clients rely on external investigators, and how risks are identified, assessed, and communicated.

Key themes discussed

•  Background checks vs. due diligence
   The episode clarifies the distinction between the two terms: background checks as an initial screening process, and due diligence as a more in-depth, structured investigation aimed at fully assessing risks. 
•  Why clients commission investigations
   Clients typically seek due diligence when facing uncertainty around key decisions, such as investments, partnerships, market entry, or senior hires. The core objective is to understand who they are dealing with and what risks may arise. 
•  Types of risks assessed
   Investigations focus on a wide range of risks, including reputational concerns, source of wealth, sanctions exposure, governance issues, business track record, and behavioural red flags (including online conduct). 
•  Methodology and approach
   The discussion highlights the importance of a structured methodology based on the intelligence cycle: defining the research question, collecting relevant data, verifying sources, and producing actionable analysis rather than raw information. 
•  OSINT and human source inquiries
   While open-source research forms the foundation, many cases require human source inquiries to provide context, validate findings, and uncover information not available in public records. 
•  Jurisdictional challenges
   The availability and reliability of information vary significantly across jurisdictions. Differences in corporate transparency, media landscapes, and cultural norms can materially impact investigative approaches. 
•  Case example: uncovering fraud
   The episode includes an anonymised case where a seemingly credible company bidding for a major contract was ultimately revealed to be a fraudulent front for an individual with a history of criminal activity. 
•  Working with limited or excessive information
   Investigators must navigate both data overload and data scarcity. In low-information cases, creativity and alternative data sources become critical, while high-volume cases require careful filtering and prioritisation. 
•  The impact of AI on due diligence
   AI is increasingly used to process large volumes of information efficiently. However, the discussion emphasises the growing importance of verification, critical thinking, and human judgment, given issues around reliability, consistency, and trust.

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• Website: https://berlinrisk.com/

Transcript

Verena, Davids, welcome on the podcast. Hi. Good to be here. to be here. Uh, we have already, uh, had a conversation with Vena, I think about two years ago, about sanctions. Uh, David is new on the podcast, so maybe I can ask you first to, uh, briefly introduce yourself. Right. Thanks for having me, Philip. you know, I, I think I've been a listener of the podcast for longer than I've been a colleague, I think. Uh, yeah. It's a, it's a great work you do here. I, uh, I joined Berlin Risk a year and a half ago. Um, I come from a broader background in security investigations. Uh, and this pivot to, to corporate intelligence that we do here at, uh, Berlin Risk, that was, uh, definitely new to me. So I remember very much intimidated by you two, all the other talented people at Berlin Risk when I started out. So yeah, I had a lot to learn. Thank you, uh, ver Verna, uh, as I said, like, uh, you, some listeners might already be familiar with with you, but can you, can you just remind, those, those, those, those, those of the listeners who don't, uh, who, what do you do? Yeah. Hi Philip. I'm director at Berlin Risk and yeah, I was on the podcast a couple of years ago, um, before you became an internet sensation. So yeah, it's really good to be back. Well, thank you. Thank you, uh, bald for, uh, coming on the podcast. Today we'll be talking about the topic of background checks and due diligence investigations, which is, uh. What do we do on a daily basis? Right? And, uh, uh, even though this might sound kind of, um. You know, technical maybe for some people, but I, I just wanted to kind of make it clear that, uh, this is actually something that probably most people have some sort of experience with, specifically the background checks, right? If you go to, you know, uh, you wanna go to Barcelona or wherever you looking for best place to stay, to feel comfortable, you will usually do some type of check on the accommodation. You will at least read the reviews or. Um, you know, do some type of type of research and we basically do the same, but obviously little bit more in depth or probably much more in depth and, uh, in a more structured fashion because that's what we do a daily basis. Maybe the first question, uh, because I already men, uh, mentioned those two terms, background checks and due diligence, can we maybe ver a distinguish somehow between those two terms? Yeah, we, we can, I mean, they're often used interchangeably by um, people, but there, you know, technically due diligence would be a. Well, background checks would be kind of a, a screening, uh, initial checks, a little bit more of a surface level investigation. A first step say, and due diligence would be sort of a more in-depth structured investigation where you really try and get to the bottom of any issues that might have come up in the first, um, background check. So that's kind of broadly how we define it, but um, as I said, people use it, use the terms interchangeably, often. Okay. that's good. That's a good starting point. Uh, let's maybe talk about what type of clients, uh, to us to, uh, to do either, you know, a background check or a due diligence investigation, and. What do they typically want us to find out where we wanna, wants to start? Maybe David. Um, so I think usually the client. And, you know, this, this depends of course, but usually, so they come to us when there's a, a decision they wanna make and there's a certain level of uncertainty. And so that can be an investor who's looking at a company that could be a fund who's choosing, you know, service providers or it could be any kind of business, um, that's looking to go into a new market. Um, anything like that really. And so they. They generally wanna know, not just, not just if there's a problem on paper, whether they're, whether there are, know, your reputational integrity, maybe source of wealth issues, anything that could affect them after that decision's made, you know. Plainly said, I think most of the clients who come to us, they wanna know, okay, so who are, who are these people we we're looking to do business with? do they operate? And, you know, what risks are we taking on, um, if we, if we proceed? Is there anything you would do would like to add to this Verna? Um, yeah, I mean I think that has covered the main issues, but I mean, traditionally, I guess we've worked for large institutions that have had kind of more traditional. Kind of clear need to protect their reputation and integrity. Um, uh, you know, and they're investing in potentially challenging jurisdictions, but increasingly we find that we have more clients such as kind of private equity and so forth, where they really need to carry out background checks on their investment targets. And that, you know, in these cases, they're, you know. Um, you know, they're sinking a lot of money into their venture in, into these ventures. They're usually, they're usually taking a controlling stake, um, but they're not really close enough to the companies to really understand or evaluate the risks, which is what. Was, um, uh, talking about, I mean, you know, and they want these companies to really grow, to expand, you know, there, there's a lot at stake here and they really need to understand if the target has, has the people there within the structure to really be able to meet those targets, to meet those requirements. Um, and they need to understand the hidden liabilities, um, which might ultimately threaten the value of their investments. Um, yeah, as I said, there's a lot at stake. Sometimes we're also approached by these companies. They wanna install top executives. They're very sim, it's very similar. You know, they need to know that these people have the skills to carry out their, um, you know, the necessary job. Basically on a basic, you know, on a basic level, we're looking at. Obviously there are the top level kind of reputational issues that are legal. You know, they wanna make sure that, that the, um, you know, that where the Dave has mentioned source of funds, you know, they need to make sure they're not inadvertently being involved in money laundering or, um, you know, or the people that they're running their companies aren't. Acting as proxies for sanc sanctioned individuals. These are kind of high level things, you know, but there's also, are they legit legitimate and serious business peoples? The, you know, they're dealing with, is there a reputational risk associated with the person? What is their business track record like, you know, have any of their previous ventures failed in a really spectacular way that they weren't aware of? Um, do they even have the right temperament? Those kinds of things, you know? Um. If a person's been posting kind of really, really crazy and outrageous things online, um, deep, you know, on social media somewhere, this, this ultimately is a, is is a potential liability. Um, so it's, there's a, there's a range of, there's a range of risks that, that our clients are, are thinking about out. And why do the clients reach out to, to us as opposed to, uh, doing those, uh, type of checks themselves in-house? Um, mostly, I guess it's a resources and, uh, skills factor. You know, they might, you know, most, most clients are able to do a Google search or even use an, use an AI these days to kind of run a name check, or they might even have access to, to, to, um, they Lexi Nexus or something like that. But these are really kind of high level checks and they don't really get to the bottom of things. It's not, it's, you know, you might, you might find. Often that is the case. You know, the clients will come to us because they found a news article that they, they don't really know what to make. They don't really know how to make sense of it. Say there's a rumor somewhere that, you know, there's, there's that, that there might have been, uh. The, the source of funds might not be quite legit, you know, but they don't really know how to, how to assess this information. They've already put loads of time and work into preparing this deal, and they're kind of confused. They, they don't know how to move forward, you know, and how to assess this. So they come to us obviously because we are experts in digging a lot deeper, um, and using various tools to help us. Um, well help the client get clarity on how serious those risks are and how, how likely they are to. In the future, either cause a reputational risk or really threaten the investment, um, on a, on a larger scale. So how do you actually go about finding this information? Let's see. Someone comes up to you and says, Hey, I wanna do business with this individual in this particular jurisdiction, and I wanna, you know, uh, make sure that, there is no, uh, there is, there's no issues there. Like what type of, uh, resources do you use? how do you, how do you approach. These investigations dots. Uh, you know, I think, we always wanna start with a, with a discussion with the client. We wanna start with finding out the, the question only then proceeding to, you know, the different tools. So. Uh, you, you wanna define clearly what the client actually needs to know, and, and from that you can build a. Uh, a source strategy, uh, a collection strategy, that will always include, you know, public records. It will include corporate filings, court databases, sanctions checks. Uh, we cover adverse media as well. various forms of osint, you know, your archived web content, your investigation of certain, domains, but then the point. The point is never to collect everything possible, right? It is to collect the right information from, the right places, uh, in a verified manner. So I think, I think that's generally the, the approach. So, and if this, this is a good point actually, David, because I imagine especially in this day and age, there's so much information, uh, out there that you, it's probably not even possible to collect everything, but how do you make sure that you collect, you know, the right or relevant information for the specific case? Do you have some sort of a, do you work with some sort of a specific methodology? You know, I think the general methodology of investigations hasn't really changed that much the, over the years. I feel like, you know, the field of Osint for for sure has grown and changed, and there's always new tools and new data sources, the, the approach itself. You know, you can speak about the traditional way of looking at it. The, the intelligence cycle, uh, that's, that's stayed the same. So what you have to do is you have to have a very rigorous, very consistent, uh, very determined mindset, and then follow steps according, uh, according a predefined methodology. the, the ideal. be that you pull on loose threads until you know all your questions are answered. However, that's obviously not, the ideal scenario. That's rarely the case. And does it, does it, does it ever happen that, uh, you know, you are, uh, looking at a particular individual or a company and you, uh, you deal with the opposite problem? You know? So instead of having, you know, too much information to deal with, you have zero information. Uh. I feel like I, I feel like you, you two would agree that those are the, those are the more fun cases. Right? So it's, it's much, I think it's much different work. Um, but it is, it tends to be much more satisfying. 'cause then you, then you really have to get inventive, right? Then you really have to go, alright, so what is a pivot point here? What's a data source that I can look into here? What's, who's a person I can ask? How's, how can I look at this differently? You know, that's, that's the outside of the box kind of thinking. And it normally, normally it leads to, uh, if done well. It leads to a, to a clear cut answer. Whereas, you know, for these massive conglomerates that we work on sometimes, you know, there's, you always have to focus in on something very specific and aspect is more, most that you can cover, right? So, yeah. So those are two very different types of investigations. Yeah, I mean, I, from my experience, I have this, uh, often when, let's say I'm, I'm, I'm looking at a particular individual and usually, especially if the person is. I dunno, it's like a 60 plus, uh, of age. Then it's, it's more common that the person is like lower digital footprint it's more difficult to find information on that person, or, the, there are obviously instances where, uh, a, a person might deliberately try to really minimize their digital footprint, which, which then can be a, a finding in itself. Because that's, uh, that's a, that's a, that's a specific type of behavior. I was also wondering if you guys have some, uh, particular examples of, uh, where, you know, the subject appeared at first to be legitimate, but turned out to be complete fraud, or, I don't know. Any, any, any kind of favorite investigations that you could share in some anonymized, way. Please. Yeah, I mean, know this, it's always a, um, it's always an interesting situation, right? 'cause as an investigator, you're, you, you, you feel this sense of accomplishment when you do find these things out. it's, most often it's bad news for the client. So, um, and there have been several such cases in my time here with burden risk, where, where we've uncovered. Well just, you know, uh, fairly ridiculous, attempts at fraud, meaning that the, the front that, that a certain individual or a company had put up, um, the front. Was believable at first sight enough, however, um, for the client to, you know, probably, I don't know, suspect something. 'cause they did, you know, give it, give it to us to investigate further. And then when we look into it, you know, I remember this one case we had in, um, in the Middle East, which, uh, it was a company that, uh, uh, that, that were up for. A multimillion dollar, uh, public tender where they, they said they're gonna, uh, build a massive, massive IT infrastructure, right? And they, they claimed they had all this experience and all this, all these projects already under their belt. And then. You know, it just, it all crumbled away as we, as we proceeded. So, you know, you went from, from, from these massive claims to finding out that it was actually just this one. Very, very, uh, I suppose delusional, um, individual. Who was, who was on the run, uh, in another, from another jurisdiction, had already multiple accounts of fraud and was just attempting to, to pull another scheme. And it was just, I remember working on it and it was just such a, um, such an experience you, you know, to to to, to talk to people who've, who've been close to this individual and to uncover this step by step. And then of course, when presenting this to the client, you wanna be. You wanna be as objective as possible. But in some of these cases, you know, you, you, you just gotta, you gotta, you, you wanna give it the, give the client the entire picture? this story's just so interesting. yeah, Yeah, I think it's a, it's a, it's a, it's a, it's an important point as well because some of these, especially as, as, as Verna said in, I. the beginning, some of these more complex, uh, um, uh, due diligence investigations are often kind of narrative driven because we have so much. Finding so much information that we are, uh, we kind of need to, be able to tell a, a, a, a, a story based on, based on the findings, which is based, uh, on open sources. But, uh, you, uh, I, from what I understand, you just mentioned the Davids that talking, you were talking to people close to the subject. So the investigations are based not just on open sources. You also conduct, uh. Yeah, yeah, for sure. So it's not just, uh, osint research. I mean, open sources are essential. Um, but in many jurisdictions, you know, they, they only get you so far. That's, they just show a part the picture. So, so we do routinely conduct source inquiries, so that's often through. Through a network of, of trusted partners. Um, and that's especially when, yeah. So when, when public data is either thin or non-existent when we just, we, when we want context. Around, um, certain things. So, you know, reputational questions or, or relationships or decision making processes. So these are the type of things that are not likely to be reflected, you know, in, in, in, in open source data. So, so yes, so the work is very people driven, um, and. I think that's one of the things we pride ourselves in here in, in Burn the Risks. So we build these relationships, we develop them with our partners across the world, right? And so it's not easy. So they're not doing easy work. Um, we have great trust in them and, uh, some of these people we work for, work with, you know, for years and years, and, uh. And, and, and it's really become, um, just this, uh, I don't know. We've built up so many memories with some of them that you go like, man, it's, we've been through a lot, so yeah. And Rena, what, what, what, what kind of, uh, like sources when you work, you know, on an investigation, what kind of of sources do you usually, Um, yeah, I mean usually it, it really depends. It builds, usually builds on the osint level as, as David was saying, like there's public records can only go so far, right. Um, so, you know, in lots of European countries even there's public records. We're really not. Be adequate, even Germany, where we are based, right? I mean, it's, it, you know, you court records are completely inaccessible. Um, you know, so if someone gets into scrapes with the law, um, but they don't make it into the media, this is not gonna be something that public records would tell you. So we, um, you know, or, or it. ENT might tell you where, where a person worked or what projects they were involved in, but not really how well that project was received. So the kind of people that we would usually, I mean on a standard background checks, usually they're not quite as spectacular as the ones that David's described. You know, they might be quite routine. We might just talk to some former colleagues of the person, you know, some people that sat on the board with them who really know who, what their strengths and weaknesses are like. Um. We might talk to competitors. I mean, we often talk to competitors. Um, they might be aware of the subjects track record, um, in their sector, you know, and they might be, I mean, in obviously with somebody like competitors within a sector, that's, we have to be careful, um, how we deal with those sources because there's a potential for bias. But oftentimes competitors are more likely to really. Be willing to spill the beans. They don't, might not have such a personal relationship to the client, but we'll know what they've, I mean, sorry, not the client, the subject, but we'll know what they've, you know, what they've done and how it's been received in the sector. Um, so it's good to get a spread of sources. And then obviously, as I said, it's informed by the osint. So if something comes up and we, and we realize, for example. That we have, um, indications in osint that, um, that, you know, something's not quite right. We might choose then more sector specific, or we might choose a lawyer or legal expert to really dig further. Um, we might talk to journalists that are really familiar with a case, if there's a lot of media around a case, um, or. Um, or experts who can otherwise contextualize the issue. David's mentioned context and that's super important, um, that we can say, okay. You know, definitely cut through the media hype because often, you know, in a lot of these. Jurisdictions is not, I mean, I was talking about Germany and you know, Germany isn't particularly transparent in its public records, but it has a really a, a good media landscape that is reliable. But then you have a place, say like Jordan, which um, comparatively, um, is quite transparent in terms of corporate records. You can get quite a lot of shareholding information, but the media landscape is quite, um. It can be challenging, uh, you know, to some extent, um, you won't get the true picture from the media. So there's these, you know, and, and in those cases we need to weigh up and we need to dig a a little bit further, but the, the kind of sources that we look at will be different. Um, yeah. And there are, are, are you limited to any specific jurisdictions? I mean, you just mentioned rna, obviously Germany, Jordan, David, David's also mentioned Middle East before. Is there any, you know, do you work all around the world or, uh, do you have some limitations in that regard? I. No, we don't, we don't have any limitations. We work pretty much everywhere and we have worked pretty much everywhere. We, you know, we came, I guess out of a strong focus on the CIS and, and Eastern Europe, and Northern Africa and the Middle East. But we have, we do work everywhere. Um, just by default, you know, a lot of our, a lot of our subjects for background checks and due diligence, they will have. Business interests across the whole world. So, you know, we are looking at, we're looking at people with business interests in, in offshore, offshore jurisdictions where there's almost no information to kind of, you know, the Balkans or places where there's a lot, a lot more transparency. And then, you know, right, right across Asia, um, and Africa, Sub-Saharan Africa increasingly so, yeah, it's, it's, it's, it's a global operation and that makes it fun. And does the work differ significantly? You know, when you move from one country to another, you, I mean, you mentioned before we another that this dis this distinction between, uh, Germany and, and, and Jordan. In, in, in, in, in, in a sense, uh, of the information, public information availability, and media landscapes. Uh, that's obviously, um. Uh, something that can complicate the investigation. Is there anything else, uh, that you could, uh, share? Yeah, I mean, uh, yeah. As, as I mentioned, transparency is of records is a huge challenge. And also, you know, so, so as I said, offshore jurisdictions where notoriously there's almost nothing you might pay a hundred dollars for just to get a proof of registration of a company that might, you might have an address, you might not even get directorships. You certainly won't get shareholdings, and then you have some. Um, countries where, you know, at a click of a button, you can, you can search corporate registers for directors, you know, with shareholding information, everything upfront. And it's not necessarily a. Jurisdictions that you'd expect. So a lot of the, a lot of this, the XCIS co countries and, and, and as I mentioned, the Balkans, they're really, really transparent and it's easy to get information there on, on corporate registers and shareholdings, which is great. Whereas we've had the opposite effect in some of Western European countries where we've seen, uh, UBO registers. That's ultimate beneficial ownership registers. Closing up access. Um, and we also have, you know, places obviously it, it, it also differs within regions, you know, within the Middle East. Some jurisdictions are pretty open and transparent and becoming more and more transparent. Transparent because they wanna attract legitimate and respectable. International business, but then you have other places where investigations are extremely challenging. Um, you know, we've had, we've had cases in Saudi looking at source of wealth. And then, then again, you have the balance between the fact that, as you said, in a lot of countries there isn't this tradition of, of. Online or Osint, um, online activity. You know, we had a case in Saudi Arabia when we were looking for a, a client in the EU into a source of wealth issue, and the client was concerned because there's just no online trace of how, where the source of wealth for this business that they wanted to invest in was coming from. And, and, but that's. Not unusual in the Saudi context. So in that case we had to dig a little deeper with some human source interviews. Hmm. Um, I dunno if that answers your question, but, uh, maybe David has more to more to add on that. I think I wanted to add to what explained, uh, about, you know, the differences in, uh, when it comes to osis, but the same can be said about, you know, source inquiries. It's a very, it's very much a different. Uh, situation, asking questions, you know, in, I don't know, Germany, or, you know, as opposed to say a country in the Middle East. People in different countries have different cultural norms and their, you know, their willingness to talk, uh, differ and, and, and what they or what they consider worthy of, of saying, or, or what they think is. Is appropriate to say it, it very much differ, differs on the cultural context and the jurisdiction. And of course on the, uh, on the, just on the level of, um, access you have, Yeah, I I. to cut. Yeah, agreed. Oh, sorry. Go on for that. cultural differences. We, we just had a podcast, by the way. I would like to invite everyone to listen to our last podcast where we talk about, uh, doing investigations in different languages. And we've spoke, spoke exactly about the subject, how you have to consider the culture of the place where you investigate to, uh, to kind of know where to look for information. Uh, and, uh. I'm conscious of the time, guys. We are approaching, uh, the 30 minute mark, but I would like to just one last thing because I feel like this is something I cannot really, uh, we cannot really avoid this topic. And I've also discussed this already with our last two guests on the podcast, that topic of ai, which, uh, if we go back to the research part of our work, uh, this has obviously been affected. Uh. by, by that technology. Uh, maybe David, can you, you, uh, tell us a, uh, couple of, uh, couple of words about how, uh, B have, or Berlin has, uh, has been dealing with the challenge? You know, it's, think it's affected us in a lot of ways. I feel like many changes have already occurred. I'm, I'm sure many are still to come, but it's, you know, it's a mixed bag really. So it's, it's, I mean, you know, your generative AI tools are very useful, but they're not magic. Um, there's a lot of. You know, long hanging fruit, of course, uh, that you can use them for, you know, like combining or, or a lot of different sources of information into just dumping them into one place and then combing through them, you know, these large amounts of text that we can now sift through quickly with the help of AI in no time. You know, that's, that's massively important that's a great, uh, boost to, to how we do research, however. You know, we then the flip side of that is that we now have to spend significantly more time and effort on verification. Because, so, so now you're stuck looking for, all right, so I have this little, uh, needle in the haystack, but then was it really there? How did it come there? Uh, how can I pinpoint it back to, you know, wherever the AI got it from? And then, and then of course. Um, yeah, I, I feel like there's a, um, I don't know. I feel like this verification burden, it's, it's becoming increasingly more relevant I would say. I would say at this point, generative AI tools, they're, they're, they're valuable assistance to us, but they're, they, they're no substitute. They're no substitute for, for just the methodology that you use for the, for a, for a sheer hard skepticism a general approach and for the human judgment. Right? Because at the end of the day. uh, it's gotta be the, the, the distinction between raw information and intelligence is still valid. And what we deliver is intelligence. And so that intelligence consists in judgment calls. It consists in a conclusion that the client can act on, should be actionable. And so that means that. I mean, I'm not saying that generative AI can't give you that. What I'm saying is that we are the ones going to the client and saying, this is what it is. So you have to be willing to stand by it and stand for it. And so you have to trust it. And I think trust then is the name of the game with, with AI these days. again, I'm very hopeful. I'm very optimistic that we're, we're trying to integrate them, just as many AI tools as we can, as quickly as we can. But, but then, yeah, I always urge just a certain healthy dose of skepticism as well. is there anything else you would like to add? Uh, Verna. No, I think David has summarized it very well. I mean, it's, it's just, you see, the problem that we have with AI is just the lack of consistency. I think, you know, we, we, you know, you might spend a lot of time building a prompt and get a wonderful response and be able to, you know, dig out a lot of information. Um. And then you try the same again, and it, it, it doesn't, so that then you're faced with this exact, exact problem. You a lack of a trust deficit. And you know, there's this expectation that AI must have made our lives a lot of easy, a lot easier, and that we can, and, and as David said, it's absolutely true. The, the extraction of information, um, is easier. But yeah, it's, it's this, um. Yeah, it's this, uh, lack of trust and, uh, the necessity to be skeptical. Skeptical. Yeah, I completely agree. Well said, well said. Well, guys, I know that uh, there's a lot of projects in the pipeline waiting for you, so I'll let you go, but, uh, David Verna, thank you both for coming on the podcast. It's been great. And uh, I'll see you in the office. Thank you, Phillip.