How identifying red flags uncover financial, regulatory and operational risks

Last year TenIntelligence conducted over 500 due diligence checks on directors and senior executives for our clients, using our traffic light system based on Red Flags (High Risk), Amber Flags (Moderate Risk) and Green Flags (Minimal Risk).  Analyst, Tim Minchin reports on why identifying red flags is important for your organisation. 

Analysis from 2020 identified 16% of our checks were flagged Amber and 3% were Red Flags.

Despite what can be perceived as a low percentage, 3% of red flags can have a big impact on a business. The flags uncovered, helped our clients prevent financial losses from potential reputational impact on the company’s public image.

For example, in January 2016, a senior Business Development Manager of an NHS Foundation Trust was dismissed after an internal investigation identified numerous discrepancies in his expenses. The investigation led to the discovery of approximately £350,000 worth of fake expenses and the lie of holding a PhD, a master’s degree and five other diplomas being unravelled. Had the right checks been in place, this could have been avoided.

Having the right background information and checking practices in place, allows our clients to work with continued assurance and integrity.

The guidance set out by the London Stock Exchange (LSE) regarding AIM due diligence, should be a substantive tool in assessing appropriateness rather than solely a compliance tick box function.

The flags we identified in 2020 ranged extensively, as do the checks we cover, uncovering numerous severe near misses:

• Undisclosed litigation involving allegations of misrepresentation or insider trading
• Undeclared insolvencies from personal historic bankruptcies to compulsory company liquidations
• Ties to sanctioned individuals and companies or uncovering undisclosed offshore companies in notorious tax havens
• Declared education qualifications faked or not passed by the individual.

Our open-source intelligence gathering, includes a detailed examination of subscribed databases, press articles, company registries, court searches, public records and documents, insolvency registers, financial regulator fines and licenses, sanction checks as well social media platforms.

In addition, our in-depth interviews (unbiased industry insights) with former associates also helped reveal undeclared red flag issues such as:

• Misconduct, poor attitude, and misrepresentation
• Mismanagement causing shortfalls, lost contracts, litigation and fines
• Accusations of the misuse of alcohol, drugs and gambling
• The misuse of company funds or shares, short selling and over inflating company shares for gain.

It remains critical at TenIntelligence that our focus is to identify any potential risks to our clients, ensuring the individuals are considered “Fit and Proper” and mitigate any possible loss for our clients.

For further information about how we can help with background checks and enhanced due diligence, contact us on +44 (0) 203 963 1930 or email Tim below.

tim.minchin@tenintel.com