Last week, the journal The Economist printed this article. I considere it interesting and for it I have included it into my blog.

SHERLOCK HOLMES once remarked that: “It is my business to know what other people don’t know.” These days, detective work is a huge business. Thanks to globalisation, there is a lot that companies would like to know but don’t, such as: is our prospective partner in Jakarta a crook?

Corporate detectives sniff out the facts, analyse them, share them with clients and pocket fat fees. Yet, oddly for a multi-billion-dollar industry devoted to discovering the truth, little is known about private investigators. So your correspondent took up his magnifying glass and set off in pursuit of the bloodhounds of capitalism.

The best-known is Kroll, founded by Jules Kroll, a former assistant district attorney, in 1972. Along with a dozen or so rivals, it can undertake assignments anywhere in the world, at short notice, deploying teams of former cops and prosecutors, computer whizzes, accountants, investigative journalists and others. These firms are the big dogs of private detection. The industry has, ahem, a long tail of thousands of smaller ones. The precise number is unknown since the business is unregulated in some countries.

There is plenty of work to go round. Assignments linked to mergers and acquisitions have dwindled along with the number of deals, but other areas are expanding. One big source of work is the growing complexity of business regulation. Multinationals can never be sure that some employee, somewhere has not violated America’s Foreign Corrupt Practices Act, or some other anti-bribery law. Corporate compliance departments often bring gumshoes in to assist their own investigations.

An increase in whistleblowing has created more work. So has the push by Western firms into emerging markets (see Schumpeter). “It’s a business we win in America but serve in Asia, driven by the export of Western ethics,” says Tom Hartley, head of Kroll Advisory Solutions. “We’ve seen double-digit growth in each of the past four years.”

Another growth business is “due diligence” work, such as running background checks on a client’s potential hires or business partners. Last year Mintz Group, a medium-sized firm based in New York, conducted more than 20,000 checks, up 40% on 2010. “We tell clients to invest globally but investigate locally,” says Jim Mintz, the firm’s boss. Some clients ask for checks on everyone they deal with, even chauffeurs. Sleuths are also hired to probe the provenance of money. Amid a global crackdown on tax evasion, companies have grown warier of doing deals with dodgers.

Even downturns are not all bad for corporate gumshoes. Hard times often expose wrongdoing by causing scams to collapse. Industry figures report a rise in fraud litigation, asset-tracing and insolvency work. Headline-worthy mega-frauds, such as those perpetrated by Bernie Madoff and Allen Stanford, remind potential clients of the need for security.

Big jobs can occur anywhere. Kroll recently conducted a forensic audit of the failed Kabul Bank, from which nearly $1 billion was allegedly embezzled, for Afghanistan’s central bank. The client base is growing, too. Hedge funds and private-equity firms crave intelligence. In China, where accounts are unreliable, they vet acquisition targets by hiring sleuths to interview ex-employees. Post-Madoff, pension funds are doing more homework on their investments, often with outside help, says Ken Springer of Corporate Resolutions, an investigations and consulting firm.

You know my methods. Apply them

A curious development is the growth of what might be called “self due diligence”. Entrepreneurs from parts of the world where corruption is rife, such as eastern Europe and Africa, are increasingly hiring reputable corporate-intelligence firms to investigate them—sometimes with full access to their business records. If the investigator gives them a clean bill of health, they can wave it at banks, regulators or potential business partners who might doubt them. The head of one investigations firm says such work accounts for up to a third of its London office’s revenues.

Investigators have capitalised on the recent surge in cyberattacks and cyberspying. Some report an annual doubling of revenue in digital forensics. The least exciting digital work is possibly the most lucrative: electronic “discovery”, or the recovery and processing of e-documents to support litigation. Parties to big cases have to pass vast amounts of data to each other, especially in America. To cut costs, companies may hire a firm with smart technology to whittle down the e-material before the lawyers start expensively perusing it. This is done using programs that filter out e-mails and other documents that are irrelevant or privileged—though this “robotic” work needs to be supplemented with human judgment, says Vincent D’Eramo of Capstone Advisory.

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