Jules Kroll, the chairman of K2 Intelligence, says an investigative firm should be built on the diversity of its employees. “That is the real differentiator. The client is best served when you offer … a variety of disciplines to problem-solving and problem prevention,” Kroll says during a recent Fraud Magazine interview. “As we’ve done for years, we bring in a lot of talent — including forensic accountants, fraud examiners, academics, investigative journalists, former prosecutors and attorneys,” he says. Finding the right mixture of nontraditional staff was (and is) one of Kroll’s tenets that helped him construct the corporate investigation industry.

Prevention emphasis

Prevention is an important concept for Kroll as it was for Dr. Joseph T. Wells, CFE, CPA, when he founded the ACFE in 1988. “In certain venues, it’s really hard to get institutions to [include prevention measures],” Kroll says. “Historically, the great bulk of our work is post-facto situations. In other words, something had already happened, and the questions are, Who did it? How do I prove it? How do I rectify the situation? How do I salvage my reputation?

“What began to change, for my work, was in the late 1970s, when we had morphed from just focusing on pay-offs and kickbacks in the procurement field, we began … to get work from some Wall Street houses that decided the market was just starting to regain some strength,” Kroll says.

“We built a business around due diligence for investment banks, primarily, and then commercial banks, where we went into quite a bit of depth as to people’s business histories, which there hadn’t been very much of that at the time. That was preventative. That was before the fact. That, probably, was the first area that we were able to have an impact in any meaningful way,” he says.

“It got to a point where there was a time when we were the only one doing it, subsequently a lot of other folks began to do it, and due diligence became a given for commercial and investment banks.”

He says that the executives’ request to “Get me a Kroll” — preemptive due diligence — became a generic description. “But what it really meant was doing something before the fact, from a preventative point of view. It’s always been a more complicated sale. People are reluctant to spend money on anything, until they’ve had a problem,” he says.

Kroll’s investigative philosophy

Kroll has devised basic training tenets for employees in K2 Intelligence, which he cofounded with his son, Jeremy, in 2009. “No. 1, it’s more important to listen than to talk,” he says. “Listen to what that client or prospective client has to say, and try to get an understanding of why. Sometimes you think you know the reason that’s motivating the request, but it’s good to ask.

“Second, restate to the client, both orally and in written word, what we think you want us to do. So, right at the outset there’s clarity as to what the goal is and letting people know how we’re going to go about it. … I think you need to get off to a good start, to set the ground rules,” Kroll says.

Clients might want the firm to solve a mystery, help counsel to put together a case for litigation purposes or collect information for a regulator, he says. “Let’s assume we’re successful in gathering the information you’re hoping that we gather. … How’s it going to be used?” he’ll ask the client. “Because, sometimes, conducting an investigation could actually be counterproductive. You want to talk that through with people because some investigations involve a certain amount of risk, and the question is, what’s your tolerance for risk?”

Kroll says it’s important to compel a client — especially a new one — to engage and be candid. “It’s like any relationship,” he says. “The earlier you can get down to the meat of things, and be clear and transparent with each other, you’ll be a lot better off, but sometimes the setting is not conducive to that. First rule of the road is try to get people to be candid with you and to set expectations.”

The third training tenet is choosing the members of the investigation team, he says. “I do have a bias, wherever possible, and if the budget is permitting, I like to have at least two people working on it with different perspectives. … I’m a little bit obsessive in that regard because I’ve always believed in teams that have different life experiences, and where possible … I like to have … gender diversity. … Then the client has the best chance of being well-served, budget and time permitting,” he says.

“I know this is pretty simplistic stuff, but those are some things that we try to make part of our culture,” Kroll says.

International work

Kroll has always looked past U.S. borders. The Foreign Corrupt Practices Act of 1977, which prohibits U.S. companies that do business overseas from bribing foreign officials, generated many accounts. Kroll soon opened offices in Paris, Moscow, Sao Paulo, Tokyo, Singapore and Manila.

According to an article in The New Yorker, two Kroll clients, Nokia and Motorola, in 1998 had loaned a total of $2.7 billion in separate deals to a Turkish family to build a mobile-phone network, but the family stole much of the money. Kroll helped find and seize their assets, which included apartments on Park Avenue, a mansion in Belgravia and a jet on the tarmac in Berlin. (See The Secret Keeper: Jules Kroll and the world of corporate intelligence, The New Yorker, by William Finnegan, Oct. 12, 2009.)

Kroll says his firms recovered wealth plundered by such dictators as Jean-Claude (Baby Doc) Duvalier, Saddam Hussein and Ferdinand Marcos. “We’ve always had a considerable business working for countries who decided they wanted to go after former officials who stole from their countries,” Kroll says. “It started with Marcos back in 1985. … We did that work pro bono with the U.S. Congress. It was the only money that was recovered by the Philippines for at least 10 years. It was $300 million.

“We’ve probably done close to 60 investigations of former corrupt officials. … We let people know that if they steal from their countries in the form of kickbacks, payoffs … that people are going to come after them,” Kroll says. “Hopefully, it also serves as a form of prevention. … This is probably the life work of many of your members in the public sector … working for government entities.”

Advice for fraud examiners

Kroll says he wants fraud examiners to believe in the importance of their work. Their work is important enough that right or wrong moves can have real-life implications, he says. “Some of those implications are complicated, some of them are controversial, and some of them you ask yourself, ‘Why did we ever take this on to begin with?’ I think we have to have that understanding that the nature of our work is not cookie-cutter,” Kroll says. “It’s quite often nuanced. It can be quite often affected by the politics of the situation.”

Kroll also advises fraud examiners to constantly seek out new technological ideas and techniques from all parts of the world. “The United States is not the fount of all knowledge. There’s a bigger world out there. When I had my former company, we worked all over the world. We had 64 offices in 32 countries.

“Increasingly, we find that a lot of the innovative, broad solutions — particularly in relationship to financial institutions — are occurring today outside the United States,” Kroll says.

He says that many of the employees at Financial Integrity Network, the company K2 Intelligence recently merged with, are former U.S. Treasury enforcement officials, many of whom were government employees during 9/11. He says they were deeply involved with the creation of anti-terrorist financing, anti-money laundering, sanctions and Know Your Customer regulations. All of those things are designed to carry out the processes where monies are involved — where it’s transparent and less subject to abuse by malfeasors. Much of their client base consists of global banks, ministries of finance and central banks outside the U.S.

Kroll says the level and speed of innovation is often greater outside the U.S. because many countries aren’t encumbered with vast bureaucracies, approval processes and complicated litigation systems. “I would encourage people in our field, and companies they work for, to take a good look … outside the United States.”

Encouraging younger employees

Kroll, 78, has been busy with the creation and merging of firms, but he enjoys his active family life with his wife, Lynn; four children (Jeremy; comedian and actor Nick Kroll; Dana Kroll; and Vanessa Kroll Bennett, an author and speaker on girls’ issues) and 12 grandchildren.

He serves as chairman of the John Jay College of Criminal Justice Foundation. Kroll is a former member of the Board of Regents of Georgetown University and the Board of Trustees of Cornell University and also served as the chairman of the Georgetown Law Center Board of Visitors.

Retirement might not be in his vocabulary, but in recent years, he says he’s pulled back from giving a lot of interviews and public speaking. “I just feel I want the younger members of the team to,” he says. “If somebody has an interest in what we have to say, I just assume, get the younger folks out there. The world has heard from me enough. I want to see other people out there with their own ideas and approaches.” However, Kroll will break his speech-giving moratorium to share his experiences with the attendees of the 31st Annual ACFE Global Fraud Conference.

Dick Carozza, CFE, is editor-in-chief of Fraud Magazine. Contact him at dcarozza@ACFE.com.