09 June 2004 03:59
Detectives Make Business Less of a Lottery
A nationwide lottery company grew worried earlier this year when its prizes were repeatedly won by residents of the
same village in the Russian Far East. It seemed implausible that someone could counterfeit the tickets, which were
designed with more than 30 security features.
Despite a thorough police investigation, the company learned very little, and arrests have yet to be made. To find
out how the fix was being perpetrated, the company turned to a private detective agency, which found that two young
lottery-ticket vendors in the village were not counterfeiting tickets, but instead routinely hacking into the
company's computers.
"The company first wanted me to bug their phone conversations, which is illegal," said Moscow detective
Alexander Upatov. "But I wouldn't be a private investigator if I didn't know ways to get the same
information another way."
Upatov's detective agency, Alex, is one of those benefiting from a growth in commercial investigations. For a
long time, businesses considered the services of private detective agencies more exotic than practical. But attitudes
are changing.
Although private detective agencies became legal in the early '90s, many businesses initially preferred to rely
on the retaliatory services of hired thugs, said Sergei Stepnov, president of the security and investigation association
Lions, established in 1992.
Detectives have since been persuading businesses to employ different, less violent tactics, and that more can be
accomplished by allowing a private firm to clean up the mess, he said.
"We watered them, we fertilized and cherished them," Stepnov said. "And now the clients are
ripe."
Companies specializing in commercial investigations say demand has been rising since 2000 and could expand much
further. "The market is growing rapidly, but is still small compared to its potential," said Sergei Minayev,
general director of Special Information Service, a company that researches and analyzes business information.
Experts have estimated the private investigations market to be worth from $30 million to $70 million annually.
Russia's 2,000 licensed private detectives either work alone, or as part of about 200 companies. The
information-gathering companies do not conduct surveillance, and thus do not have to obtain a license. If necessary,
they hire private eyes for the legwork.
Private investigators and information-gathering companies commonly gather commercial intelligence, execute due
diligence reports, and search for people and property in liability cases.
Before signing a deal with a foreign customer in the mid-'90s, spacecraft manufacturer Energia sought a due
diligence report on a prospective partner, said Minayev, a former KGB major who specialized in preventing subversive
activity. An investigation revealed that the person negotiating with Energia was previously reported to have been
involved in commercial espionage, and the deal was called off.
Upatov recalled how a former Russian citizen was charged in 2001 with defrauding a foreign investor. The defendant
claimed in court that he had no property to pay back the failed investment, but some digging revealed an oil storage
facility the man owned.
"No one else would have found it," Upatov, a former military pilot, said proudly.
In another case, the design for a shopping mall was put out to tender by a company linked to one of the prospective
bidders, Upatov recalled. Receiving this information, his client decided against making a bid.
Helping companies foil hostile takeovers is one of the latest growth areas for investigators.
Last year, a mid-sized Moscow food processing company hired Minayev's firm after it saw signs of a hostile
takeover attempt. Minayev identified two companies behind the takeover attempt and helped his client counter the
pressure by reporting them to the authorities, beefing up security and instructing personnel against revealing company
secrets.
Other popular services include pre-employment checks, supplying banks with information on loan applicants and
investigations of internal fraud, such as instances of employees stealing company property.
Tracking down producers of counterfeit goods was fairly prominent in the '90s, Minayev said, but this type of
work has decreased because police have become more efficient in this area.
In one case, a counterfeit tea producer in a city in southern Russia was easy to track down, as its bogus labels were
spotted strewn all over the streets.
In contrast with the West, Russian insurance companies do not tend to use private detective agencies much, preferring
to rely on their own in-house security services.
Many Russian detective agencies are able to conduct investigations worldwide, or through partners. Being a member of
an international organization, such as the World Association of Detectives, is helpful for this. But for now, some
war-ravaged states are off-limits.
"I refuse orders only for Iraq now," said Stepnov, who is a member of WAD. Citing confidentiality, he
declined to answer whether Russian oil companies had inquired about Iraq.
In a reciprocal development, some Western investigation agencies have established offices in Russia. One such firm is
London-based Kroll Worldwide, which then-Premier Yegor Gaidar hired in 1993 to locate the Communist Party's foreign
bank accounts. Kroll opened a Moscow office in 1997, and currently employs seven Russian staff.
Tactics for obtaining information vary widely between private detective agencies.
Stepnov relies on his own sizable database, collated during his 15 years in the business. Minayev says he has access
to the databases of some state agencies, such as the Federal Customs Service and the Federal Statistics Service, as well
as the Moscow Bureau of Information Technologies and international databanks such as LexisNexis and Data-Star.
He warned against using pirated databases that sell on Moscow's flea markets with information about individuals
and businesses, as they are largely incorrect and infected with computer viruses.
A more reliable method of gathering information, Stepnov said, is simply to purchase as little as a single share in a
company.
In business-related investigations, private eyes seem to be less reliant on police than in personal cases, almost to
the point of scoffing at such cooperation. "Not a single state agency -- let alone police, prosecutors or
especially the FSB -- has ever given a reply to any of my inquiries," Upatov said.
For pre-employment checks on a person's criminal record, Upatov sometimes approaches the individual's
parents for information. He misrepresents himself as, for example, an employee of a center for assistance to former
prisoners. "Your son is eligible for a monetary allowance because he served a prison term," Upatov might tell
the parents, he said, and their reaction shows what he needs to know.
A brief memo on a bank costs around $300 and is compiled within three days, Stepnov said, while searching for a
defendant's property or tracking down a business partner to deliver a court subpoena can cost anywhere from $50 to
$800 with Upatov's agency.
Minayev's company charges $600 to $1,500 for a regular company background check, or upward of $5,000 if
underworld connections need to be traced.
Insurance claims investigations are some of the most labor-intensive, Stepnov said, as detectives have to ensure
their evidence can stand up in court. "Every time, we have to develop a method of obtaining information that would
have legal value," he said.
Upatov said he locates information supporting or ruining a claim, but then leaves it to the insurance company to go
about the formalities of retrieval.
In the lottery fraud investigation, which is still ongoing, Upatov declined to reveal his tactics. "You'll
know everything in a month," he said.
Editor's note: This is the second of two stories about private detectives.
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[The Moscow Times] |
RUSSIA IN FACTS
