Following last year’s war of words about the value of low cost ‘synthetic credit reports’ and whether low cost means lower quality, credit managers seem not to be troubled by such arguments.  They seem to cherish the low cost alternatives evidenced by the growth rates of some low cost information providers.   However this is only half of the story as corporations are hard pressed not only to manage risk, but to protect their brand, reputation and integrity.

Almost unnoticed in this debate is the revival of an old industry:  company investigations.  Many of the traditional commercial credit information companies started out with investigators or reporters who conducted premise visits and telephone interviews.   This practice is long passé and the synthetically generated credit report has taken over.   However the need for investigations and due diligence has not diminished.  To the contrary, increasingly complex business regulations and compliance issues drive the need for sophisticated corporate intelligence services.  This is no longer the age of the ‘single Sherlock Holmes’ type of skill set, this is the age of corporate intelligence gathering and it is going high tech.  Regrettably the ‘old investigators’, mainly the traditional credit reporting businesses are no longer participating in this fast growing industry.

Apart from employing teams of former prosecutors and policemen, accountants, computer wizards, investigative journalists, today these companies also rely on forensic accounting skills and complex software programs.   A new field is in digital forensics driven by cyber-attacks and cyber-spying.   Another lucrative activity is the electronic ‘discovery’ or recovering and processing of e-documents to support litigation.

The Economist (January 5th 2013 issue) called the companies engaged in corporate intelligence gathering “the bloodhounds of capitalism’, a term bordering somewhat on the extreme.   There are legitimate concerns about the integrity of employees, affiliated companies and partners.   When operating globally one can never be certain that some employee has not violated America’s Foreign Practices Act, or other anti-bribery laws.  Fighting money-laundering, providing anti-counterfeiting and protecting intellectual property, or conduct background checks on key management hires and business partners.  A compliance program could flag transactions involving people or firms on government watch lists.  All these are legitimate business practices based on the concept of due diligence.

Fraud litigation is on the increase requiring skills in fraud litigation, asset-tracing and insolvency work.  As fraud and scams increase in complexity so does the workload.  The industry reports a 20% to 40% increase in workload.

The best known company is Kroll which was acquired by Altegrity, Inc. from Marsh McLennan in 2010 with revenues of approximately US$ 600 million.      Recent highlights for Kroll was a forensic audit of the failed Kabul Bank, from which nearly one billion dollars were embezzled.    It also was involved in the $447M settlement in Alba’s Civil RICO action against Alcoa.

There are many others such as FTI Consulting, which is the only publicly traded company employing 3,800 people and with annual revenues of US350 million; Thomson Reuters Governance, Risk and Compliance business with approx. US$ 50 million;  Bishop International London;  2K Intelligence;  Palantier (security software); Mintz Group; and many smaller companies.    Industry revenues may be in the range of US$ 2bn – 3bn.

Source:  Economist January 5th, 2013 –  BIIA analysis