Whom do you trust?

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Whom do you trust?

Two of the editors of this journal recently spoke to a group of bankers and journalists in Tashkenton Anti-Money Laundering, Fraud, as well as Identification, Valuation, and Protection of Critical Information/Intellectual Property.

One of the bankers commented that before giving a loan they would go out to see the enterprise, view the equipment, and interview the applicant. On several occasions, however, after the loan had been made, the people and the machinery would disappear. What were they doing wrong?

The answer was that they were interviewing the wrong people. Rather than devoting all their time to the applicants, they needed to be dealing with the secondary characters, such as the neighbors. The neighbors would be able to tell them that the people and equipment had recently arrived, and had no history in the area. Similarly, the ownership of the equipment needed to be verified. Heavy equipment that was rented for a week was not an indication of an ongoing enterprise. An ancillary benefit is that when this approach is taken, more people (the neighbors) are aware of the bank, and the care and interest in which they treat their customers.

The more money that is involved, the further afield we tend to go in doing background checks. The job of the due diligence investigator is to determine what is true about the application and what is not. This includes checking out the bonafides of the applicant, including assuring that they are who they say they are, and not merely that they have documents saying who they are; and that the circumstances that they describe are the actual circumstances, and not an elaborate net of lies.

Banks make money by collecting on the loans, and they make money by making good loans, not bad loans. Most applicants are relatively honest, and don’t require an inordinate amount of investigation. The bigger the amount of money involved, the more care that needs to go into it. Even on smaller projects you need to develop some sense of when things look right, and when something just seems wrong.

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