Vigilance, determination and seeing the world as it really is – as opposed to how we imagine it to be – are more important than ever for today’s executives if Europe is to remain relevant in the world.
Going into a major business deal without crucial information can cost companies dearly. Boards may think they understand a new partner, a market or a country risk, only to discover too late that the ownership structure is opaque; the people involved are unreliable, or geopolitical realities have changed the logic of the deal altogether.
Intelligence reports help management boards navigate the future and using them for business is nothing new. Companies have always benefited from knowing more than their competitors about the people, pressures and power structures that shape a market. What has changed is the speed, complexity, and scale of the risks now coming over the horizon.
Today, intelligence is delivered through a mix of well-placed human sources, digital research capabilities, and professional analysis. The result is actionable insight – on executives, counterparties, ownership structures and the political and economic realities of a given country. For boards, that can make the difference between moving with confidence and walking into avoidable risk. In an era of geopolitical disruption, hidden ownership, fraud, and espionage, those insights are no longer a luxury. They are a strategic necessity.
When regular due diligence is not enough
The following is a true story from my 20+ years of real-world experience, illustrating how intelligence is used in today’s business:
German executives had come back from negotiations in Istanbul and decided they wanted to go ahead with a planned joint venture. Their company was a manufacturing group, and their Turkish partners were good at both procuring the raw materials and assembling components. The plan was to form a joint entity in Cyprus, 50% co-owned by each side; fill it with personnel, funding, engineering know-how; and use the new business to expand into central Asian and Middle Eastern markets where both sides saw great potential. It was a solid idea.
The Turks had already proposed a candidate for managing the day-to-day operations of the joint venture, one of their long-time advisers, who they said could open doors in the business community and politics.
The Germans, meanwhile, had already received the results of the financial and legal due diligence on the Turkish partner company. They were both fine; no major issues were identified. But at the last minute, the German board realised that they had a serious blind spot: they knew nothing about the background of their new partner company and its key executives. We were hired to put them under the microscope. The questions they wanted answered:
- How did the Turkish group start, who was the founder, and how well was he connected?
- Were there any regulatory skeletons in the closet?
- Who was the “adviser” who was set to run the joint venture’s operations and what was his background?
- What is the quality of relations with the government of President Erdogan and neighbouring countries?
- What countries are Turkey’s allies and adversaries in the region, currently and projected into the near future?
These turned out to be prescient questions. The business partner screening performed by Corporate Trust found several issues, some harmless, some not: The Turkish group had originated in a smuggling business that began in the 1980s. But it had since expanded into manufacturing, real estate, and logistics, becoming a legitimate company group in the process. Occasionally, corruption was an issue, which was typically managed by the aforementioned “adviser” who turned out to be a veteran of an organised crime group, providing a long reach into the business community and politics in the wider region. A versatile man, to be sure, but not suitable to run a joint venture.
Also, the Turkish side had already participated in a venture with a western partner years ago. Importantly, there was a story confirmed by two human sources of a serious dispute over the strategic direction the company took. When push came to shove, the Turkish side had employed some dirty tactics, which included blackmail of key employees, to get what they wanted. Also, there was some skimming and embezzlement in the then joint venture. Management insiders had brought various compromised suppliers into the company that they controlled. These issued invoices for no-show jobs and non-existent supply deliveries and split the profits with the corrupt managers. Even though it was ancient history by that point, it was relevant information.
The intelligence behind the decision
On the plus side, the background check found no regulatory issues at all among government agencies in Turkey; and relations between the company principal and the Erdogan family were generally good, they even knew each other privately.
Faced with this mixed bag of insights and after much deliberation, the Germans decided they would go ahead with the creation of the joint venture, but they implemented some key security measures. They installed a Swiss financial controller who they appointed; they rejected the Turk’s “adviser” for any internal operational role other than making contacts among his networks. They also installed a small security department consisting of two people: an ex-cop and a cyber-security expert who kept an eye on the IT architecture. They wanted to retain a real measure of control over this large investment.
In the end, it all worked out. The joint venture has been running successfully for several years now and, so far, no serious irregularities have occurred. Trust has meanwhile been established between both sides, not least by demonstrating that the Germans were not naïve in their approach. The intelligence – on companies, people, and geopolitical insights – had helped them navigate the risks of that particular deal and avoid nasty surprises. It also gave them the geopolitical intelligence in the wider regions of the Middle East and Central Asia they wanted to expand into. Knowing which way the political wind is blowing and the Who is Who of any given regime can be the key to doing business.
The risk inside the building
Companies today also face another challenge that solid background information can help solve: hiring honest employees. Studies have shown time and again that about a third of resumés contain false information. Lying on a CV has become disturbingly commonplace in recent years. Given that it is easier than ever to use AI to forge whole documents, such as diplomas and recommendation letters, companies are well advised to “trust but verify”. Especially when the job constitutes a position of trust and access to trade secrets.
A thorough pre-employment screening (a.k.a. background check) includes various crucial elements of verification:
- The candidate’s identity (especially important for digital-only hires)
- Resumé and employment record
- Education and academic qualifications
- Potential side businesses and undisclosed directorships/shareholdings
- Social media footprint / reputation risks
Lies on a CV are often an important first red flag. Whenever white-collar criminals are caught, it often turns out that many already started out their careers by misrepresenting parts of their professional experience or academic qualifications. Catching these discrepancies early means supporting anti-fraud management in the company.
When background checks become counter-espionage
Beyond just fraud however, companies also face another risk that a thorough background check can help mitigate - espionage. Not every company, of course, is at risk of becoming a target of a foreign intelligence service’s efforts to steal corporate secrets. But those who are, like the high-tech, infrastructure, and defence sectors, know it. Additionally, there are scores of companies who are leading champions in their specific industries, and they face losing market share in the future to competitors who may want to steal their trade secrets. China comes to mind, being the most aggressive in this area, but by far not the only one.
In our day-to-day, we have investigated countless cases of corporate and state-sponsored espionage targeting European companies. In many cases, the perpetrators – who were company insiders – first stole engineering plans despite strict IT controls; and then started their own group of companies, replicating the exact product. This could have been caught through background checks and awareness.
In one case, the former employer is now facing the real possibility that they may lose hundreds of customers in a short time because now there is a considerably cheaper, but comparably good, product out on the market. Twenty years of hard work, investments, research and development stolen in the blink of an eye.
Seeing the world as it is
Vigilance, determination and seeing the world as it really is – as opposed to how we imagine it to be – are more important than ever for today’s executives if Europe is to remain relevant in the world.
The old world is dying, and the new world struggles to be born:
now is the time of monsters.
Antonio Gramsci
About Sebastian Okada
Sebastian has been providing clients with intelligence and investigations for over 20 years. A former wire service journalist, he crossed over into the corporate intelligence sector in 2004.
About Corporate Trust
Corporate Trust is a leading security and risk consulting company based in Munich and Vienna, supporting organisations with expert intelligence, security, and resilience solutions in an increasingly complex risk environment.
Sebastian Okada
Corporate Trust
