International Background Checks: Strategies for Global Due Diligence

With the advancement of the modern globalized economy, international background checks continue to grow both in prevalence and in importance. Given that investors often seek out foreign investment opportunities, ensuring complete transparency requires conducting pre-investment due diligence that includes an in-depth global background screening of a company and its executives.
By Judith Goldberg
April 26, 2022

International investment opportunities continue to expand

When searching for compelling growth opportunities, investors are increasingly looking to foreign investments. In fact, in the year 2021 alone, foreign direct investment (FDI), an investment made by an individual or an entity in a business that’s located in another country, in the U.S. saw an increase of 114% to $323 billion. In addition, global mergers and acquisitions nearly tripled in value to $285 billion.

While some of this expansion has been attributed to the post-pandemic rebound, the United Nations Conference on Trade and Development expects growth rates for global FDI to increase in 2022.

Given that international investment opportunities are rapidly expanding and that they are likely to continue to garner significant fund interest, organizations must be particularly attentive to screening procedures in order to mitigate investment risk. In this article, we will outline the importance of international background checks in the pre-investment due diligence process and some of the challenges associated with conducting them.

Pre-investment background checks for foreign investments

When evaluating an international investment opportunity, a global background check is invaluable in identifying potential risk.

In today’s global financial landscape, where trust plays a significant role in our professional relationships, international background screenings are run on companies and executives in order to vet their credibility and reputation. Importantly, background checks identify any red flags that could pose a threat to the investment.

Regardless of whether the investment is domestic or international, having all the facts enables investors to make more informed decisions. With this in mind, a background check services provider that has global check options should be consulted and hired to conduct a thorough screening as they have the expertise as well as access to international databases.

Thorough screening procedures for non-U.S. citizens and individuals that spent time abroad

A common scenario that requires a global background check is when an individual or a company chooses to invest in a U.S.-based company in which one of its managers is either not originally a U.S. citizen or has lived, worked, or studied in other countries.

As of 2020, approximately 11% of CEOs of U.S. Fortune 500 companies were born outside of the U.S. With regard to spending time overseas, a study found that three quarters of U.S. Fortune 100 CEOs spent at least two years working in senior positions abroad at some point in their careers. Bearing this in mind, international background checks can surface useful background information from one’s country of origin or from time during which an individual had lived abroad.

Three quarters of U.S. Fortune 100 CEOs spent at least two years working in senior positions abroad at some point in their careers

Additionally, many individuals seek educational and professional opportunities around the world, which can lead to gaps that are unaccounted for in an individual’s timeline. As investor focus is increasingly landing on international opportunities, companies need to have the full story to responsibly invest in opportunities around the globe. International background checks fill in gaps, and thus, provide a more transparent and complete picture, which in turn minimizes risk exposure.

What are the differences between U.S. and international background checks?

At the end of the day, a U.S. background check and international background check are used for the same purpose. Having all of the facts laid out in a clear and contextualized format can help investors come to a sound decision. The key differences between a domestic and international background check are the availability of this background information and how it is collected.

Given the variable nature of both the availability of data and local privacy regulations, international background checks are country-specific. Despite the discrepancies, it has been observed that overall, the number of countries that have adapted their privacy laws in order to grant third-party access to court documents has grown over the years.

Here are a few examples of disparities among various countries:

As of 2018, countries belonging to the E.U. are committed to the General Data Protection Regulation (GDPR), which places limitations on processing an individual’s personal information regarding criminal convictions or offenses, except for certain situations, such as when a lawful basis (outlined further in the GDPR) has been established.

Post-Brexit, the U.K. is no longer bound to the E.U. GDPR, and now complies with legislation known as the U.K.-GDPR, which is in effect along with the Data Protection Act of 2018. While the U.K.-GDPR is very similar in content to the E.U. GDPR, there are some differences. For example, one notable difference is the age requirement to give consent for personal data use. In the U.K., you must be 13 years old to give consent for personal data use, while the age in the E.U. is 16. Additionally, when it comes to the enforcement of the U.K.-GDPR, this is the responsibility of the Information Commissioner’s Office, where it previously fell under the jurisdiction of the European Data Protection Board.

In New Zealand, one can obtain a criminal record, but it will not include the same breadth of information included in a criminal record in the U.S. For instance, charges that haven’t been tried in court yet as well as charges where the individual was not convicted won’t be included on a criminal record in New Zealand.

India does not currently have a comprehensive law on data privacy, although it has been argued that an individual’s right to privacy is protected under India’s Constitution. That being said, the Information Technology Act 2000 and the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules 2011 do  provide certain guidelines when it comes to sensitive personal data. Sensitive personal data, which includes financial information, can only be collected if the subject of a background check has given their consent.

What are the major challenges when conducting international background checks?

Challenges involved with international background checks are more logistic in nature. Firstly, some countries provide court documents in other languages. However, a solution to this barrier is that they can be translated to English and then processed in an international background check.

What’s more, global background checks will sometimes take more time to complete than domestic background checks. As a result of organizational and technological differences between countries, some will take longer to collect and provide information than others. For instance, in India, searches related to criminal history are done at local police stations, where records are often still kept in paper form and not digitally. As a result, response time can sometimes take longer, especially in rural areas.

What is included in an international background check?

An international background check will typically include a comprehensive range of background information, including:

Residential address confirmation—Confirmation of a subject’s residential address is part of the basic information that is included in an international background check.

International education verification—This section of the background check confirms a subject’s attendance and any degree(s) they may have received from educational institutions located all over the world.

Global employment records—A list of the subject’s past employment records from locations around the world where they have been accounted for as well as dates of employment are typically included. Furthermore, a background check should highlight any discrepancies and inconsistencies between a subject’s LinkedIn profile and the information that was verified.

Professional licenses—Any professional licenses are customarily verified in order to confirm that the subject has the credentials they say they do.

Corporate directorships—If the subject is or was a member of any boards of directors, this information could also appear on a background check. This will help provide a full picture of their professional history.

International court records—Any findings from a court records search, according to each country’s legal system, would be highlighted in this section of the global background screening.

Adverse media—In today’s society, the media has the power to shape the public’s perception of people or events. If a subject is associated with any adverse news, it could have a serious impact on their reputation. Given the potential effect of adverse news, it is important to search for news in both English as well as in the local language when running an international screening.

Global sanctions and blacklists—Sanctions lists disclose penalties against individuals and entities for engaging in illegal activities. These lists are compiled by government authorities or official boards to make any wrongdoing public and prevent the sanctioned individual or entity from performing additional unlawful acts.

Politically Exposed Person (PEP) databases– A PEP is an individual that has a prominent political role or has been tasked with a high-profile public function. As a result of their position, a PEP might be more susceptible to money laundering, bribery, or corruption.

Intelligo international background checks

Intelligo is at the forefront of background check technology in the U.S. and we have expanded our expertise to international checks, with our streamlined process allowing users to obtain comprehensive global coverage in any country.

For an even deeper and more comprehensive dive into the scope of the research, we offer country data extensions, an exclusive option that covers additional sources using local partners on the ground in countries outside of the U.S. While the data that is included in the country data extensions will vary based on the jurisdiction, it will often cover address verification, international education verification, and criminal history. Additionally, the extension may cover civil records, directorships checks, as well as other information.

An example of international background checks related to adverse events

One example of an international background screening that was run in connection with an adverse event surrounded one European country’s international gas provider. An Intelligo customer was linked to a bank that offered a loan to the gas company in November 2017. During the previous month, a journalist was murdered, allegedly because of claims she made of high-level government corruption related to the gas company.

When prosecutors in Europe launched an investigation into banks in connection to the journalist’s murder and corruption in this European country’s government in 2020, the client was concerned if there had been any indication of these risk factors before November 2017, when the bank made the loan to the gas company. If evidence of this was found, it would show that the bank didn’t perform sufficient due diligence and comply with anti-money laundering regulations.

The report created by Intelligo was able to identify that before 2017, there were several data points that connected the gas company to the government corruption.

Takeaway

International background checks provide the transparency that is needed in order to make the most informed decisions when considering a potential investment which involves an individual who has spent time abroad or a company located abroad. Despite the challenges that may arise, international background checks provide a valuable and enriching perspective in any international pre-investment decision.

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