Companies rely on valuable data to help them make informed and actionable business decisions. However, with so much data on and offline, identifying valuable, accurate and quality data is very complex and challenging.
In recent years, the market has seen an influx of self-described due diligence providers. These companies do not understand the compliance market or decisions that should be made from due diligence investigations; they deliver quantities of data over relevant quality. And, these humongous datasets may be impressive, they are not meaningful to you as most of them are simply a compilation of media articles, questionnaire and interview responses.
Any consumers of integrity due diligence reports should understand that without added value in the form of analysis, insight, knowledge and advice, data is just data; it is useless and may not help you make informed decisions or effectively manage potential risks.
Good due diligence intelligence must go beyond readily available data and business intelligence which you can simply access on the internet or secondary sources. To be truly valuable, it involves critical data analysis and a deep understanding of how it relates to your business, your industry and the markets where you do business.
The complexity and challenges of due diligence data collection
Acquiring high quality data from paid and open-access sources is a resource-intense process. It takes lots of time, investment and dedicated resources to mine, collect, assess and build a wealth of valuable data that is meaningful. The high cost and expertise involved in building due diligence data is the reason why many of the so called due diligence providers in the industry today are selling cheap and readily available data as due diligence.
In many jurisdictions, access to certain data (corporate registry records, litigation records, financial records, bankruptcy records, credit worthiness reports etc.) is a basic right which an interested party can access at a fee or free of charge. Government agencies provide this data as part of public service. As such, its value is underestimated because agencies are not obliged to explain what it means to you or they simply do not have the expertise, time or resources to do so.
Another complication that many of the low value due diligence providers fail to get right is their failure to understand that data collection should meet client expectations, and must be obtained in compliance with local regulations and legal requirements. Striking a good balance between client needs and local requirements is an art only a well-experienced due diligence provider can successfully execute. Such a task involves a great deal of fluency in local language and a good understanding of the local environment – business, economic, legal, regulatory and political. In some European jurisdictions data collection, storing and publication is regulated. This means data from these jurisdictions must be handled within applicable laws and regulations while made usable in due diligence. Only reputable due diligence providers that understand the sensitivity of data protection and handling can effectively pull this off without breaking any law.
Moreover, some jurisdictions in Africa, Middle East, Latin America and Asia are underdeveloped, at war, ‘closed’ or politically unstable. In many of these countries, data repositories are not digitised or centralised. Therefore, obtaining data from these locations is a costly exercise that requires expertise and patience. Because central data systems are not digitised, data must be physically checked and copied using pen and paper from heaps of paper files which at times are not up-to-date or are illegible. There have been few incidents where certificates of registration have been purposely removed from the registries by dodgy companies or lowly paid corrupt public officials that request for ‘facilitation payment’ to make documents accessible. For a boutique due diligence provider, this is the easiest way to obtain data. But for a well-established due diligence provider, this is an unethical conduct that will not be allowed because reputable due diligence providers know the ramifications and will not want to expose you to risks.
Additionally, in an environment where anyone can publish anything on any platform, incidents of ‘fake’ data sources are very high. It takes lots of expertise to determine what information is credible and what is not. Data found on a company’s corporate website, blogs or an individual’s social media profile cannot be regarded as conclusive before it is checked against official sources. This process is a significant undertaking involving counterchecking and analysis before it is deemed accurate.
Obtaining data from offshore tax havens is equally complex because of the secretive nature of the laws in these jurisdictions. The challenges stem from the fact that Caribbean jurisdictions such as the British Virgin Islands or the Cayman Islands are well-known tax havens and famous for their confidentiality. Due to these attributes, these locations can be associated with fraudulent activities such as money laundering. In these offshore financial centres, numerous companies are registered for tax optimisation and confidentiality purposes only, while their main business operations are carried out elsewhere in the world. Thus, data collection in these jurisdictions generally do not yield any result and site visits at the registered addresses often find the premises of the target entity’s registered agent, which is usually a company that provides corporate services to many offshore companies. Neither is much information obtainable through registry checks because shareholders and directors do not have to be disclosed to the public, and nominee directors and shareholders are frequently appointed. Therefore, it requires considerable on-the-ground expertise to obtain accurate and valuable data.
There are also jurisdictions that do not follow the Gregorian calendar. Therefore, certain data may appear outdated to the inexperienced researcher, but it is not and simply follows a different calendar system. This can only be determined by country specialists who have the local ability to explain this.
Regarding site visits and boots-on-the-ground verifications, the challenge arises when you are dealing with a low value due diligence provider that has no local presence and knowledge of how to safely and legitimately take discreet images relevant to due diligence. Reputable due diligence providers will assign their trusted local specialists to do site visits or ask them to explain from a local perspective why photographs cannot be obtained from certain locations such as security installation, military facilities or countries at war/post-war. To minimise image-related risks, reputable due diligence providers invest in reverse imaging and meta-data technologies to ensure that the photographs included in your due diligence report are not from the internet or a commercial stock image provider.
Therefore, when investing in due diligence research, it’s important to ensure that you engage an experienced and qualified provider. That provider should have in-depth experience to research techniques, global reach and understanding of those markets, and the staff to take the care to review all information and deliver only the most valuable and relevant of information. Why spend money on cheap due diligence that has no value to you?