Over the years, progressive and productive societies have flourished, thanks to new technologies, free trade, strong political leadership, and many other advancements. One of the most often forgotten characteristics that has helped modern societies progress has been the openness of a culture or the transparency between business and government institutions.

Using the standards defined by Transparency International[1], the key characteristic of the most corrupt countries – as seen by their lack of transparency and accountability – is the presence of a totalitarian government, typically ruled by the military or a cabal with communistic ideals. The lack of transparency makes it incredibly easy for people in power to hide their corrupt practices and allows organized crime to operate without scrutiny. One of the greatest liberties we have in the U.S. is our freedom of speech and the open exchange of information. This fundamental right has been instrumental in maintaining a proper balance of power between politicians and citizens and has fostered the free flow of money, information, and goods that is without precedent in world history. Transparency has always been a hallmark of U.S. and Canadian societies. However, over the last 10 to 15 years, in response to increased incidences of cyber stalking and identity theft, we have seen a tightening of privacy controls. The advent of regulations such as HIPAA and PHP is now spreading to a greater degree to many businesses and affecting how they impact legitimate business transactions. Although many of these laws are warranted, we are also running the risk of overreaching and improperly interfering in the ability to transact totally valid business. In our claims investigations, we witness firsthand the impact of these increasingly dramatic changes over the last several years. Stricter controls have hampered our ability to conduct comprehensive insurance investigations, M&A due diligence, and pre-employment background checks. While these laws were initially enacted in the U.S., they have quickly been adopted in similar fashion in Europe with its strict European Data Protection Act that makes it illegal for a private investigator to access criminal records, bankruptcy files, police and autopsy reports, and, especially, any health-related records. While we strongly support these laws in their goal of protecting individual privacy, their unnecessarily broad application carries unintended consequences: constraining the free flow of commerce, reducing or eliminating transparency in business transactions, and enabling fraudsters to hide behind these privacy laws. Recently, industry groups have begun to shed more light on these issues. For instance, according to the European insurance and reinsurance federation, European data protection rules could hinder anti-fraud efforts[2]. Every day in our business, we see how these laws impact our investigations. Even when claimants sign a legal authorization allowing investigators to access legal documents and medical reports, legal authorities and medical institutions often either ignore their responsibilities to disclose information or erect punitive requirements such as estate papers, court orders, or other barriers. All these bad-faith requirements ultimately delay the payment of legitimate claims and add to claimants’ costs having to hire attorneys to comply with these requirements that unfairly impact the consumer themselves. Private investigators and risk managers are an integral part of an open society – limiting their activities based on these privacy laws will only continue to impact the ability to assist those who depend on our services. When law enforcement and private industry do not have the time and resources to assist in cases such as enforcing child support orders, investigating missing-persons cases, conducting pre-employment screening, analyzing mergers and acquisitions and insurance claims, it is the investigation industry that has stepped in. And it is the investigation industry that has historically played a vital role in helping identify and prosecute many criminal cases where law enforcement did not have the resources or jurisdiction to pursue. There are countless examples where we have helped families find lost relatives or enabled mothers to locate estranged fathers who have failed to make family-support payments. But we are particularly proud of investigations that have uncovered fraudulent insurance claims, saving carriers millions of dollars. For instance, we recently helped El Salvadoran law enforcement officers disrupt a major fraud scheme where organized crime members were killing innocent women to collect life insurance proceeds[3]. Our efforts and collaboration with local law enforcement enabled them to prosecute these criminals. Within the insurance industry, we also see gradual changes in how we can influence investigations. It is increasingly apparent that the nature of investigations is evolving from comprehensive due diligence to more limited, cost-effective inquiries. In a world where tighter privacy laws make it easier than ever for fraudsters to hide, due diligence is one of the best investments a company can make, offering a compelling return on investment in a climate where people are becoming more brazen in their attempts to defraud and are unafraid of repercussions or consequences. The associated “sentinel effect” of an aggressive anti-fraud posture can have an outsized deterrence effect to protect companies and even prevent them from being targeted. Globally, there is reason to be concerned about being a potential fraud target. At DIG, we routinely work on cases where major cartels are involved in insurance fraud. Chinese snakeheads – gangs involved in human trafficking and other criminal activities – often use life insurance to insure illegal immigrants and for anti-money laundering. We have recently seen cases in Syria and other Middle Eastern countries where the insured or beneficiary had links to radical groups. We are seeing an expansion of fraud in areas where it is often dangerous and more difficult to conduct investigations – and logistically challenging to meet with budgetary constraints facing the industry. It takes qualified, resourceful, and loyal partners to develop teams to defeat these increasing incidences of fraud. As the old axiom says, “Pay now or pay later,” because this is the most challenging climate for global fraud that we have ever experienced. When you are not closely involved in the investigative side of the business, the red flags are not so apparent, so we are often asked to consult with carriers to help identify questionable cases. We repeatedly see the greatest benefit and return on investment when we are able to consult during the underwriting phase. In spite of all the news and number of fraudulent claims, we continue to see a significant number of claims handlers who are not as familiar with some of the most prevalent types of fraud. Our desire to provide great customer service should not preclude us from conducting the necessary due diligence to detect and deter fraud and keep the fraudsters from targeting our companies. Fraud is risky business for all; no one understands that risk more than Diligence International Group. As an industry, we must be vigilant in our understanding of the evolution of global privacy policy. It is imperative that U.S. and Canadian companies ensure their teams understand the cultures and laws where we market our business. Companies must continue to expand their global understanding and reach and remain focused on the importance of due diligence. We must maintain strong lobbying efforts to keep access to information open and accessible on a “need to know” basis. Please feel free to contact our office for any investigative or international due diligence advice. We appreciate all of our partners’ support in our effort to minimize the impact of fraud.

Richard J. Marquez


 Return to All Posts
A Changing World? Not Necessarily
Read Post