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Liability Risk

Internal Crime Prevention

Background checks and monitoring property — like laptops lent by the company — can deter and prevent crimes committed by employees.
By: | April 9, 2018 • 5 min read

Given the steady drumbeat of school shootings and other horrors, risk managers can’t afford the outrage fatigue that numbs Americans, especially given the unsettling fact that their companies’ resources — human, electronic, automotive — could be used to commit a crime.

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Economic crimes — fraud, espionage, embezzlement — are commonplace. PwC’s 2018 Global Economic Crime and Fraud Survey reports 49 percent of global organizations have experienced economic crime in the past two years, and 51 percent of frauds were inside jobs.

As different as violent and economic crimes are, risks of both can be mitigated through management practices: careful hiring, background checks, on-the-job monitoring and probing exit interviews, industry experts agree.

Ounce of Prevention

A background check on a prospective employee is not an off-the-shelf affair, said Richard G. Hudak, managing partner, Resort Security Consulting Inc., but a thoughtful, detailed inquiry by a reputable organization appropriate to the applicant’s prospective duties.

“A $25 computer ‘background check’ isn’t a background check,” he said. “Real ones look at sex crimes, drunk driving, serious debt, mismanaged credit, multiple divorces and bankruptcy.”

A veteran consultant to the hotel industry, Hudak said, “Bankruptcy isn’t a big deal for guys moving banquet tables around, because they don’t have access to guest data.”

Heidi Li Feldman, professor of law, Georgetown University Law Center

However, bellmen and housekeepers with access to property should get a more thorough check, and front desk clerks, who have access to credit cards, should undergo even greater scrutiny.

For pilots, he said, any domestic violence, DUI, or dishonesty about employment or education should be a disqualifying event.

Exit interviews can deter theft of intellectual property, said David Taylor, managing director, Protiviti, by employees who leave on good terms of their own volition and by disgruntled or laid-off workers.

“When people leave, they can release their research, proprietary information, network and customer information into the wild.”

Employers have limited tools to “prevent them from downloading that intellectual property to their new employer,” Taylor said, and exit interviews are an important reminder not to do it.

For example, Waymo sued Uber last year, alleging departing employees gave the ride-hailing company access to Waymo’s trade secrets covering technologies needed to build autonomous cars. The suit ended in a settlement.

Because debt, divorce, addictions and despair can turn good employees bad over time, periodic checks after hire are a good idea, said John Farley, vice president, cyber risk practice leader, HUB International.

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So are controls on access to information.

“Limit access to information on a need-to-know basis,” he said. Classify all data, monitor it in real time, block thumb drives and other exit points for information and set up immediate notifications if certain information is emailed. Block file-sharing websites.

Background check best practices also apply to contractors, said Scott Moritz, managing director, Protiviti. Even with the best controls, employees can go rogue.

For example, Edward Snowden, a government contractor, infamously leaked a veritable trove of National Security Agency secrets in 2013.

An investigation afterward showed his background check was incomplete, but it’s unclear whether a properly conducted check would have thwarted his leak anyway, said Moritz. Snowden considered himself a righteous whistleblower, an attitude cursory background checks wouldn’t detect.

Although out of step with current employment practices, the availability of mental health counseling might suss out the state of mind of employees with access to potentially weaponized information — as well as actual, literal weapons such as guns, said Heidi Li Feldman, professor of law, associate professor of philosophy, Georgetown University Law Center.

“A $25 computer ‘background check’ isn’t a background check. Real ones look at sex crimes, drunk driving, serious debt, mismanaged credit, multiple divorces and bankruptcy.” — Richard G. Hudak, managing partner, Resort Security Consulting Inc.

Employers should find out whether counselors can be helpful in identifying when an employee might be under pressures that could lead them to disclose classified information, Feldman said.

A single employer is unlikely to impose mandatory counseling or psychological testing on its employees, she said, but collectively they might, if sufficiently motivated, move the needle.

“Social change happens when people, like employers, bear excessive or unfair costs of a problem,” at which time they may seek help from a trade association or state chamber of commerce to nudge social change, Feldman said. It would be similar to the series of events that ultimately produced smoke-free workplaces.

Supervisors should also monitor employees’ work habits and stressors, Hudak said. His wife, a nurse, observed one of her staff members was “getting hammered” every night at a local bar.

His wife watched closely and offered help. She also documented her observations and made sure the employee didn’t have access to the hospital’s drug closet.

To Be or Not To Be Liable

In general, said Feldman, an employer can be held liable for its employees’ criminal acts when it is in a good position to influence the criminal actor’s actions, and they’re responsible for the torts of their employees when acting in the course of employment.

The exception could be where the employee is a senior executive and the conduct is imputed to the organization, said John Denton, JD, managing director, Marsh.

Liability laws aren’t as draconian as they may sound, Feldman said.

“People get very anxious when they think the law says, ‘You have to prevent all crimes of parties other than yourself.’ ”

In fact, the law requires employers to be “a reasonable person of ordinary prudence.” But what is “ordinary prudence?”

A court may consider different metrics, said Hudak, such as a CAP index, which assigns a number from 0 (lowest) to 2,000 (highest), predicting the chance of a certain kind of crime, such as homicide or auto theft, at a particular address.

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When considered with incident reports on the property and 911 calls, the index suggests which types of crime are likely and which precautionary steps are prudent.

“A CAP index would tell the court that you’ve done homework, that you know foreseeability,” said Feldman.

A crime committed using, say, a company computer while the employee is off the clock is a defensible position, said Farley. Written policies and procedures about what employees may and may not do will bolster a case, as will formal training.

A strong anti-corruption tone at the top may also mitigate liability risk, said Mark W. Jenkins, senior managing director, Glassratner Advisory & Capital Group LLC. &

Susannah Levine writes about health care, education and technology. She can be reached at [email protected]

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The R&I Editorial Team can be reached at [email protected]