Q. What is a Business Background Investigation?

A business investigation, also called due diligence, is an investigation into the background of a company and its principals. The depth of the investigation may vary depending upon several factors including the nature of the transaction and the industry involved. The investigation may involve a credibility assessment of a company through court record checks, organized crime inquiries and a review of financial information. It is a perfectly legal and acceptable way for companies to ensure that the people they do business with are reliable and above reproach.

Q. When should you perform a Business Background Investigation?

Due diligence should be performed before entering into any business relationship, and is especially critical under the following circumstances:

• Taking on new client
• Mergers and acquisitions
• IPOs being handled by your firm, or in which you may invest.
• Choosing a stock or bond broker
• Forming a partnership
• New licensing agreements
• Franchising agreements

Q. What are the reasons to perform a due diligence/business investigation?

Every company should take steps to verify the credibility and dependability of the people they do business with. A negative association can hurt your business in many ways. An undependable supplier can hurt your ability to satisfy your clients. An association with an unscrupulous business or individual can harm your bottom line and generate negative publicity, ruining your reputation. There are many ways for people to commit fraud through shell companies with impressive web sites and letterhead. Due diligence is akin to buying an insurance policy against fraud.

Q. What are the common findings?

Due diligence is performed as a matter of routine by many Fortune 500 companies, law firms, accounting firms and many other types of businesses, large and small. RAI’s business investigations turn up derogatory findings in nearly 17 percent of all cases. Here are some of the most common negative findings:

Companies or individuals with:

• ties to organized crime
• misrepresented financial records
• non-existent operations and locations
• previous criminal activity by a key executive, often embezzlement
• tax liens and on going civil lawsuits
• litigious history
• bankruptcy history

Q. Will the subject of the investigation know about the inquiry?

There is no requirement that you inform the subject of a business investigation that you are checking out his or her history and background. As long as the information is gathered and used for a legitimate business purpose, consumer privacy laws will not apply. Most privacy laws govern inquiries involving individuals and consumer transactions, not business and commercial transactions.

In most cases, the investigation can be performed without leaving a trace. If any inquiry that is part of an investigation is possible of detection, we will contact the client to determine if the client wishes to proceed with that inquiry or pursue another route.

It is important to use a credible investigative firm to perform these investigations to avoid legal pitfalls. For example, some companies use database and file information of questionable origin. If this information was collected for consumer or private purposes, many privacy laws will apply, even if the use of the information is for strictly business purposes. It is important to understand the subtleties of privacy laws to avoid traps for the unwary.