Enhanced Due Diligence and Fake News – Why this is a Problem and What to Do About it

If your organization uses social media and traditional news media in your analysis of potential partners, employees or investment opportunities; you need to think about the impact of fake news.

Where Enhanced Due Diligence and Fake News Collide

Enhanced Due Diligence is the practice of conducting deep background research into companies or other organizations; or key individuals. It is generally done because the organization conducting the inquiries needs to manage their risk. EDD is a general practice in corporate risk management, and it is requirement under anti-money laundering and anti-corruption legislation. It is also a recommended procedure under certain government personnel policies.

Fake news (formerly called negative public relations or negative propaganda) is a phenomena whereby individuals, government departments or companies are targeted with false information campaigns. Admittedly, some of the campaigns are satirical and obvious; others are subtle and it is difficult to tell if they are genuine or fake.

One of the procedures under regular due diligence (i.e. first pass database checks) and the deeper enhanced due diligence is to review social media and traditional media about the subject of the inquiry. That is where fake news becomes problematic.

But Fake News Just Affects Politicians, Right?

Your first instinct might be that these attacks are primarily against prolific figures and large organizations, so it really doesn’t impact regular commercial transactions where enhanced due diligence is used. Not so according to Fortune Magazine.

Small to medium-sized businesses (SMEs) are attacked as well. The attack could come from competitors, disgruntled customers or employees; or someone simply trying to play a prank on the business.

The consequences for the business are anything but funny. Modern customers rely on online information to make choices and could be turned away from the company, which has the inevitable effect of lost sales. Even if an investor or commercial banker sees through the fake news story; those lost sales will impact the assumptions made in their valuation of the business. A contrarian opinion might be that this phenomena will create investment opportunities, but if the damage is severe enough, the business may not be a viable investment at all.

Partnerships can be challenged as well. Organizations will question whether they to partner with a supplier or distributor that has a damaged reputation from fake news.

The challenge is volume and source assessment. In the past, an investment analyst could relatively quickly debunk a tabloid article or an opinion piece. With a few rare exceptions it was generally a single instance and had limited distribution.

Now there is an industry built around the publication and distribution of fake news, some with credible sounding names. These sites make it easy to create content and distribute it to social media. If they are successful, the story will get picked up by the masses and go viral. The fact that the source appears credible and that the information is widely cited can lead to the impression that the story is real.

What Can we do About It?

Part of the job of an enhanced due diligence analyst has always been to sift through different sources to try and determine whether or not a negative (or positive) story is credible. Where does an analyst or investor turn to improve their effectiveness?

The field of journalism has produced some valuable guidelines for assessing facts in the modern viral era. We can also recommend the book Digital Assassination: Protecting Your Reputation, Brand, or Business Against Online Attacks by Richard Torrenzano. It was written in 2011, but the thesis is no less applicable today.

From the perspective of automated tools, sentiment analysis tools in news media and social media can be helpful. Source credibility analysis (i.e. was the story originally published on one of the aforementioned fake news sites) is also useful and it can be automated to some extent by analyzing the IP addresses of the publications. That was the technique used by NPR News in the case of Disinfomedia, a company specializing in fake news.

Various social media are considering releasing some variation of a ‘fake news’ button to obtain the help of their users in debunking stories. How useful this will ultimately be remains an open question.

Sites such as snopes.com and factcheck.org  are excellent resources if you’re dealing with an issue with a grand public interest component. That level of analysis might be useful from the macro perspective of analyzing a particular sector or industry, but they aren’t as helpful when trying to debunk rumors that a local restaurant chain is actually a criminal enterprise.

Deep dives into review sites can be helpful. Is there a common theme among the negative reviews that indicates that they are all coming from the same source? Is the text the same or is the username a slight variation on a previous post? Creativity isn’t always the objective of a fake news propagandist, sometimes it is efficiency; and careful review can detect that it is all the same reviewer posting the information.

At the end of the day it will come down to fact-checking. Did this event occur? Does the professor who was quoted in the article exist? Were those people in that photo actually at that place at that time? Was the product in question even available in the market at the time it was alleged to have been distributed?

Automated tools will aid in this exercise, but judgment and critical thinking will be the tools that help commercial organizations determine whether they want to ultimately do business with an individual or organization that has been the victim of a fake news attack.