Not all due diligence processes are equal, which means not all due diligence processes are sufficient for today’s heightened forced labor, human rights, ESG, fraud, and corruption landscape. Effective, enhanced due diligence goes beyond standard practices and employs several research, investigation, and data-gathering techniques.
Among these techniques that sets due diligence processes apart is link analysis: a critical part of best-in-class due diligence that analyzes relationships to reveal hidden information. How does link analysis work in the context of due diligence, and how does it elevate a due diligence process from good to great?
In the most basic sense, link analysis is a method of data analysis that involves examining relationships between nodes. When it comes to due diligence, link analysis combines open-source intelligence (OSINT) collection with visualization of bulk data, which can speed up the discovery of hidden corporate ownership structures and hierarchies across various jurisdictions. The process consists of examining the many entities and connections throughout the supply chain and creating a charted visualization of the way in which those entities connect, making it easier to identify any “missing links” or new lines of inquiry.
Link analysis can also uncover ultimate beneficial ownership structures, which often involves the automated scraping of information from social media profiles. Linda Huang, Senior Vice President, Global Head of Research Operations, says that innovations such as link analysis take some of the heavy lifting from the process by inspecting social media sources. Social media web scraping allows for the visualization of individuals’ online interactions, which, in turn, uncovers overlapping areas in personal and professional networks.
While link analysis is a valuable due diligence tool for companies in any industry, there are a few industries that have made regulatory headlines recently and can uniquely benefit from the investigative power of link analysis:
As part of a robust supply chain due diligence program, link analysis is key to uncovering a deeper level of hidden information that traditional due diligence techniques may not reach. Recent government sanctions have cracked down on Know Your Customer (KYC) protocols to restrict commerce and business relationships with corrupt companies and individuals. Link analysis improves KYC and other due diligence efforts by assisting with:
- Corporate ownership: Discover hidden corporate ownership structures, which often requires visualization of executive individuals’ social media presence and business record access.
- Ultimate beneficial ownership: Uncover ultimate beneficial ownership structures pertaining to individuals’ familial relationships or connections with business associates.
- Supply chain mapping: Provide significant information of value with supply chain mapping for third-party relationships, such as looking “upstream” to identify principals and UBOs and “downstream” when identifying subsidiaries and key suppliers.
Another area of particular concern is the assets and connections of high net worth individuals (HNWIs). Link analysis empowers asset investigations into holdings of companies and high-profile or high net worth individuals. HNWIs can be seen as a unique corporate liability, as it can be risky to rely on connections with a highly influential individual not controlled by a larger body or authority. HNWIs also tend to have targets on their backs for scammers looking to take advantage of wealthy individuals, and this vulnerability can result in significant ripple effects for any connected organizations. The IntegrityRisk team has recently conducted numerous research and investigative assignments centered around the need to reveal connections and links to a specific company or key individual.
Since corporate records and trading data are essential to the visualization of link analysis, its effectiveness is often contingent on the governance of corporate disclosures and transparency. In this respect, some countries and jurisdictions are more open than others. Specific and strict data and privacy laws, such as China’s Data Security Law (DSL), for example, can potentially interfere with gaining access to certain records or data points that would typically be leveraged in analysis and investigations.
Overall, this is unquestionably a crucial tool to first identify “who” your firm is doing business with before carrying out the necessary level of screening and/or investigation. The “who” can include the direct entity, as well as other relationships through ownership or business. These findings then make up a key part of any regulatory report to show a “good faith effort” to know any individual or entity connections when conducting global business. Exemplifying a “good faith effort” to regulatory agencies is critical when being audited and undergoing reports; even when falling short on certain compliance initiatives, a concerted effort in mapping the supply chain can help organizations reduce fines and penalties.
Human intelligence (HUMINT) is used along with link analysis to make sure that a due diligence inquiry does not solely rely on one source of information. IntegrityRisk carefully examines information obtained through covert local inquiries to inform the link analysis process while doing investigative due diligence on both businesses and individuals.
In conducting investigative due diligence on companies and people, IntegrityRisk carefully analyzes information gathered from covert local inquiries to inform the link analysis process. The newly discovered connections are added as “nodes” to the person’s link analysis network. HUMINT frequently exposes business ties for a person that were previously missed through conventional research.
Moreover, if social media or corporate records scraping reveals potentially risk-relevant corporate affiliations or personal relationships for a subject, this is shared with HUMINT sources on the ground to check the significance of these relationships. Link analysis helps with the heavy lifting of social media web scraping and could reveal, for example, an unethical conflict of interest between personal and professional connections within a supply chain partner. This data would then be passed along to human intelligence sources who can more closely verify the validity of the connection and determine whether it could create compliance concerns.
The integration of HUMINT into the link analysis process goes beyond simply handing off graphs and charts to clients; we closely analyze the data, support it with on-the-ground human intelligence, and provide clear insights into the supply chain, empowering companies to make the most informed decisions.
As part of our SCM investigative methodology, IntegrityRisk often includes link analysis research, both of which work together for the most sophisticated and insightful supply chain mapping. We deliver:
- Link analysis research: Link analysis allows us to conduct due diligence on complex supply chains, navigating and visualizing cross-border corporate hierarchies, ultimate beneficial ownership, and subsidiary structures.
- Supply chain mapping: Once information has been collected in partnership with the company, we provide maps, charts, and graphs illustrating connections and relationships within the supply chain.
- Actionable insights: By using link analysis tools as part of our broader diligence offerings, our research analyst team can stay involved and “analyze” the findings, as opposed to only providing companies with link analysis results and charts.
IntegrityRisk’s link analysis tools and expertise provides companies with the most comprehensive data, visualization, and actionable insights when it comes to their third-party supply chain partners. To learn more about link analysis and supply chain due diligence with IntegrityRisk, contact us today.