Due Diligence & Intelligence

Due Diligence

Tommy Tucker seized the opportunity – over a five year period -to defraud Gullible Games Inc of $400,000 which he wasted on fast women and slow horses before being detected. His managers did not want a scandal and invited him to resign. They further proposed, that providing he paid back $20,000 a year, they would give him ‘a not unfavourable’ reference.

Mr Tucker joined Bonkers Bank (who accepted Gullible’s reference) but, as he admitted later, he ‘had no option but to help himself to a Bonkers’ $500,000 wire transfer to pay off his debts’.

Norman Nutt, stole a single cheque of £20,000 from his employer to pay for an operation on his critically ill daughter. He was prosecuted, given an absolute discharge by a sympathetic judge, but named in local and national newspapers. He was unable to find a new job.
Due diligence is a central pillar of both adequate procedures and effective compliance and ethics programs (EPEC) and should also be part of an integrity campaign. In its standard form, due diligence assumes that a person’s or company’s history (and effectively the public record) is a reliable indicator of how he, she or it will perform in the future. In reality this is not so.

What is in, or is not in the public record is a question of good or bad luck, determined by a complex interaction of dispositional and situational factors.

Due diligence is a one-time snapshot of historical data which at best only identifies candidates with the least bad public record, rather than picking the best.

What’s more, it is unusual to find due diligence procedures that specify in advance precisely what criteria would disqualify a candidate. Rather, a subjective appraisal is made after checks have been completed. The question should not be “is this person a bad egg” but “will he perform effectively and honestly in the future, in the specific contexts concerned?”
The restricted modules propose a far more effective integrity validation process that goes beyond typical due diligence checking and is based on the principle of “integrity partnering”.  

Typical due diligence is based on the assumption that one party to a proposed relationship is superior to the other. It is not surprising that reputable foreign businesses prefer not to work with British or American companies because of what they regard as a patronising attitude and unwarranted intrusion.

Cobasco recommends that the self-appointed superior relationship should be reframed as reciprocal (or mutual).

One leading French company has a printed pack containing everything necessary to validate its integrity. This is sent to all third parties along with its request that they should disclose equivalent information.
It includes all of the conventional checking (but against weighted and scored decision matrices of green and red flags). It additionally creates open and multiple channels of communication, concentrates on decision centricity and  “integrity circles” that  provide corporate and personal drivers  for on- going ethical behaviour.

It also proposes more than a thousand automated tests to continuously monitor transactions for bribe payment, extortion, internal and competitive corruption.

It transforms the one-time due diligence snapshot into continuing assurance.

Also – based on mutuality –it creates competitive advantages by attracting the best agents, joint venture partners, suppliers and customers.

The recommended process also recognises that the main regulatory risk with agents, joint ventures and other third parties is not their historical record prior to appointment but:
  • The nature of the decisions delegated to them;
  • Their end party relationships;
  • The reliability of their accountants, lawyers, other advisers, internal auditors and compliance teams;
  • The nature and size of transactions;
  • The integrity of other principals it represents;
In a recent case Cobasco’s methodology reduced an associated person database of 14,000 entities to less than 200 that were performing services: allowing proportionate controls to be applied against an auditable matrix.
Cobasco uses a proprietary process to categorise all third party relationships based on RKT matrix. The process is described more fully in the restricted modules.

you would like a copy of Cobasco’s Integrity Validation Pack for agents and intermediaries, including a draft application form and decision (RKT) matrix please email: cobasco@btinternet.com 


We set up internal systems for Clients to monitor win-loss ratios and sales quotation conversion rates  (which are good indicators of competitive corruption) and continuous monitoring routines that identify the symptoms of fraud and other misbehaviour.

We track regulatory actions to identify the specific transactions and parties involved and alert our Clients when they might be victims.
No sensible Army commander would go into battle without good intelligence both on the identity of his enemies, on their strengths and weaknesses, an understanding of their objectives and methods. Good intelligence enables risks to be avoided and identifies opportunities.

Cobasco collates intelligence on all aspects of fraud, corruption, compliance and related topics. Intelligence is tracked in two ways. The first is by routinely searching through over 3,000 public and private information sources, worldwide, which could be of value to Clients. The second involves focused research on the specific instructions of one or more Clients.

Helping sales and marketing deal with competitive corruption is a good way for Compliance to establish credibility and to “get onside”.  But how many Compliance specialists do this?
Clients retain us to produce a daily, weekly or monthly intelligence briefings, customised to their own style.

This service is of particular benefit to auditors and other control specialists who wish to keep their senior managers fully informed.
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