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Thursday, September 23, 2010

Why Business Due Diligence and Background Checks Matter

It is important that you know the character of the person or firm with which you are doing business.  The failure to do the adequate business due diligence can lead to you losing money, suffering a damaged personal reputation or business reputation, and even the effects of guilt by association.

Business due diligence means verifying information as well as spotting trends that may indicate trouble around the corner.  Often these trends and "warning signs" consist of individual facts or indicators which, when viewed in isolation, may appear harmless or innocent.  A skilled, experienced investigative lawyer (such as myself) may have a different opinion. 

Do not rely on an inexpensive "Internet search" on various databases.  There are plenty of companies which offer "background checks."  These are not sufficient.  They offer "comfort" and "peace of mind" for a cheap price.  Do not confuse that with an actual answer to your question about someone with whom you are dealing. 

A real answer may be the answer you don't want to hear -- and more often than not it's an answer that is well hidden by crafty, shady businesspeople who know the tricks to hide from and keep from appearing in those cheap searches.  The scam artists -- the real crooks, the ones who not only know how to deceive you and take your money in the process, but also know how to get a "head start" and stand a good chance of avoiding ever being brought to justice -- have already figured out how to hide from the typical background check process.  As a result, they will appear "clean." 

These are the people who are the real dangers.  If you deal with them, it could cost you more than your money.  It could destroy your business and reputation.  In fact, in some businesses, dealing with a customer or supplier whom you do not know is shady could even expose you to guilt by association and even criminal liability.  Many criminals, once caught, try to get reduced prison sentences by claiming that they know about criminal activity committed by just about anyone and everyone else they know -- even family members.  The truth -- meaning, your actual innocence or the lack of "criminal intent"-- doesn't stop these criminals from lying to the police, to the prosecutors, or to investigators from agencies like the FBI or IRS.  (Warning:  Lying to the authorities often constitutes "obstruction of justice" and lying in court constitutes "perjury."  Both are separate crimes.)  Don't expect these people to tell the truth; if they lied to you, they will lie -- and often have lied -- to many, many other people.  

In addition, the expansiveness of the meaning of the term "conspiracy" also means that actions which, taken individually, are innocent and committed by innocent people (you, for example), could be viewed by someone else as part of a "criminal conspiracy."  This gives a criminal, with every reason to lie in order to escape jail time, plenty of opportunities to lie about you.

That's why you need a skilled human brain to sift through, analyze and investigate all these disparate facts, hints and indicators to assess the risk you are taking with your money, your career, your reputation, even your liberty.   

That difference may save you a lot of money and heartache in the short-run and the long-run time horizons.

Eric Dixon is a New York corporate lawyer who handles investigative matters for small businesses, entrepreneurs, freelancers and other individuals in non-business matters.  He accepts inquiries at 917-696-2442 and


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