Ilana Krancenblum is the Chief Executive Officer of Sqope, an international intelligence company founded in 2010 that boasts a presence across the UK, Europe, Middle East, Asia and USA. With a team made of former military intelligence, investigative journalists and academia, Sqope provides enhanced due diligence to Family Offices, banks and hedge funds across the world. Here Ilana speaks to Agreus about how the pandemic, war in Russia and Archegos scandal have impacted Family Office demand for services and offers real-life examples of why due diligence is critical for Family Office success.

How does Sqope work with Family Offices?

Our very DNA is to empower decision-makers to evaluate risk. We have a team of exceptional experts who are able to understand the context of critical intelligence and then provide factual information in a clear and digestible way for Family Offices.

We have three key business verticals but before explaining the way in which we work with Family Offices, it is firstly important to define the need.

Family Offices face a constant regulatory burden of understanding who they work with whether that is co-investing partners, investment opportunities and the people within those organisations, or the critical hires you are bringing into the Family Office environment. There are several layers to the regulatory aspect of being compliant but there is also an increasing need to shield yourself from reputational exposure. We offer Family Offices comfort in the knowledge that they are fully compliant in the way they are conducting their business and only associating with credible and like-minded individuals. In order to do this, we provide three key services:

  • Anti-Money Laundering (AML) and Know Your Customer (KYC) Reports:
    This is an independent, third-party report offered on individuals and companies. Family Offices have a need for thorough monitoring of their clients and so they often require enhanced due diligence reports. We answer all their possible questions, providing a view on the individual's history, reputational risk, source of wealth, and any reputational concerns.
    From a company perspective, Family Offices may also ask us to produce a report on a partner or entity with which they are thinking of working or investing. Who is their leadership team, is there a reputational risk of associating with them, are there any former scandals to be uncovered, are they associated with people who are under sanction today? We offer a 360 view on all types of reputational risk.
  • Know Your Employee (KYE) Reports:There is a critical need in the Family Office environment to go beyond the basic background check of a prospective hire. We offer more than a typical tick-the-box approach, which would be verifying a CV and ensuring that the person has worked at the companies listed on their resume as well their reputation exposure. You need to see the full picture of who you are bringing into your Family Office and as part of this process we conduct web intelligence which has proven critical for previous clients.We had a case for a bank in Luxembourg that was hiring a Head of IT for their headquarters and asked for our highest level KYE report on a candidate before extending a job offer. We found that this person’s personal email address was tied to jihadist websites and were able to uncover hidden online conversations between them. Although the candidate’s CV was perfect, he had never been dismissed from prior positions, and had excellent testimonials supporting his work, a clear reputational risk was exposed and had they hired this individual, they would have faced the possibility of that information being uncovered and potential accusations of links to a designated terror group. We conduct this service for Family Offices who want to ensure they are hiring the right people into critical positions. External factors can, of course, ruin your reputation from the outside but internal (and avoidable) damage can be just as catastrophic.
  • ESG Reputational Assessments:This is an increasingly popular service for particularly investors and fund managers who are keen to ensure that their procedures are not only in place and compliant for the different funds or target companies but that their reputation is aligned with the investors’ other services and ambitions. We look at the shareholders, the management teams and ensure there is no risk across bribery, corruption, past positions or online profiles.A Family Office approached us recently about a target company and we discovered that while the Chief Executive Officer once again looked great on paper, a deeper dive into previous employment revealed involvement in several MeToo accusations with a reputation as a sexual harasser.

    It is also important to note that there case studies in which our findings have gone the opposite direction, particularly in the ESG sphere. Sometimes we unpack negative media exposure of a person or company and find that there were people behind that exposure who were paid to taint the reputation of this individual or entity as they are direct competition. We put the information into such context, rank the credibility of the information, and offer peace of mind to clients over its veracity and how it impacts their organisation.

You also offer on-the-ground intelligence, how does this scenario unfold with Family Offices?

While web intelligence and our network of experts often provides the necessary and credible information to build an accurate profile on an individual or entity, sometimes it is critical for Family Offices receive an even deeper, more holistic and custom report that requires information only retrievable with human, on-the-ground intelligence.

To offer an example, we had a European Family Office ask us to perform due diligence on a Chinese billionaire with whom they were planning on partnering. The individual in question had purportedly built his wealth through industry, operating a number of clothing factories across mainland China. While all internal checks initially confirmed this, when trying to create a timeline of the individual’s wealth the Family Office faced difficulty, as they neither have the expertise on China and its culture nor the language. They, therefore, looked to us not only for our expertise in the region and country, but to put feet on the ground and fill in some blanks. The first question we had to answer was in regard to the source of wealth – was it genuine? The second was to uncover any reputational risk connected to the factories: Is there child labor? Are workers treated well? Are there other concerns? When our local investigator arrived at the factories, they were shocked to find that the locations did not exist. Despite the paper trail, which even included locations on map imagery, which had suggested a legitimate source of wealth, in practice these “factories” were only intended to mask the true source of wealth. When a Family Office finds themselves in a position in which they are unable to corroborate a individual’s story, they know it is vital to end that relationship.

This is a frequent scenario in the Family Office community in which a family’s wealth was generated in a key geographical vertical but as they become more opportunistic and aggressive in their investments, look further afield and require us to perform necessary due diligence in corners of the world they have no reach or expertise. Other examples include countries in which electronic records and other online information is incredibly sparce, including countries in Africa and Asia. We have spent the last 13 years creating a network of top professionals who operate across the world.

We saw a lot of Family Offices move to virtual onboarding during the pandemic, how did COVID-19 impact the way you do business, and did it require more on-the-ground intelligence in a time where travel for Principals was off the cards?

The pandemic certainly re-shaped the way we conducted our due diligence. Family Offices were contacting us with two major concerns. The first was that their critical employees could not get into the office and as remote working was a rare sight in the community before 2020, they could not – at least temporarily until their IT got up to speed – access their internal systems or, as a result, perform due diligence internally. The second was that they could not travel and, therefore, needed an external pair of feet on the ground to conduct any necessary HUMINT due diligence on their behalf. In the two years since the pandemic, we have seen requests for more and more information: more site visits and more source enquiries (i.e. locally conducted integrity interviews with individuals connected to the target). The question over source of wealth became increasingly common as the pandemic also coincided with a focus on cryptocurrency. A lot of wealth was created through this asset class during COVID, and questions were logically raised over its legitimacy: Did this person genuinely build all of this wealth through cryptocurrency alone? Where did the investment come from originally? These are the questions that regulators care more and more about today. We have the tools and partners to analyse cryptocurrency wallets to create a full source of wealth picture and help answer these questions.

How have other macroeconomic factors impacted the demand for your services?

Name and shame. That is what everyone is afraid of and the Archegos scandal heightened this innate fear in Family Offices.

People connected to the scandal asked themselves how did they not know? It offered the entire community another reason to take due diligence seriously beyond the regulatory requirements but, once again, the reputational risk it can create. Indeed, asking ‘how did we miss this?’ was no longer sufficient. Family Offices, hedge funds, and certainly banks needed to review their entire portfolio and ask themselves with whom they are really associating themselves. That conversation is continuing in the community today.

The second significant external factor is the increasing need for enhanced KYC. Weak coverage of reputation issues proves how standard watch-list & database checks are proving to be grossly insufficient to protect family offices.  Professionals require timely, reliable, and efficient support from experts to enable their organization’s business continuity and to assess the risks associated with their clients, partners, and countries/sectors where they operate in.

This is why we also provide country specific reports that provide a much broader understanding of the market and risk. Recently, we built a “Ukraine” report for a Family Office in Luxembourg who wanted to understand what risk existed and how it could be mitigated in order to continue working within the market.  Indeed, we help them maintain business continuity by identify who is – and who is not – too great of a risk. Ukraine is a complex arena with the political atmosphere and sanctions exposure continually evolving.

What is the most shocking thing that you have discovered when performing due diligence on behalf of a Family Office?

I think the very nature of what we do at Sqope means that there are quite a lot of examples to choose from!

In the Middle East we commonly find Family Offices hiding significant wealth behind an unassuming individual in order to hide their fortunes from authorities who may otherwise be able to reclaim this wealth as their own. To offer an example, we’ve traced royal wealth in the Middle East back to a driver who works for the family.

In another case we were compiling human intelligence on a reputable business mogul on behalf of an American Family Office. On the surface there were no issues, but we discovered that this individual’s businesses were all operating within a specific part of Mexico. Only by understanding the local environment were we able to confirm that this individual was linked to local cartel.

It is all about putting seemingly simple information back into context and understanding the red flags attached.

On the reverse, we had a Family Office reach out to us and explain that they were conducting internal due diligence on an individual in Turkey and discovered that he was on an Interpol list. The report we ultimately provided led the Family Office to continue their relationship with the individual as we were able to present the reason behind his placement on that list which was politically motivated. Like many cases, this came down to a matter of context and highlights how it is just as vital as the information itself.

What makes Sqope qualified to perform this level of due diligence?

Sqope is composed of experienced analysts who have regional expertise, speak more than a dozen languages, and have backgrounds arranging from military and private intelligence to academia and investigative journalism.

We have a very strict selection and training process for all our analysts and intelligence managers. Our research methodology, which includes assessment of source credibility, is tailored by jurisdiction and sector, and constantly updated by our regional Desk Heads. Continuous education and training is something our Head of Intelligence is particularly passionate about and something we never stop developing and improving, implementing suggestions made across the team regardless of seniority.

What’s next for Sqope?

The next step is one that is already ongoing: the USA. We recently opened a New York office. We became the leaders in enhanced due diligence in Europe over the last 12 years and the US is our logical next step. This is not only due to the regulatory need in the market – it’s fair to say that the US has been lagging behind similar regulations in Europe but is beginning to catch up — but also the type of service providers that can meet the demand for the kind of enhanced due diligence that we provide. There is a real opportunity for us in America and definitely our current focus.

As I mentioned at the beginning, our very DNA at Sqope is to empower decision-makers to evaluate risk and our team of qualified experts provide the critical intelligence and its context in a clear and digestible way for our Family Office clients.