Background screening: Unmasking a hidden threat
Background screening is a crucial tool to prevent fraudulent practices such as the recent example where IT experts from sanctioned countries infiltrated global companies under fake identities to fund their regimes.
Key points
Key points
- IT experts from sanctioned countries, such as North Korea, seem to be infiltrating global companies under fake identities using advanced tactics to fund their regimes.
- The US Department of Justice indicted 14 North Korean nationals for posing as remote IT workers to violate sanctions and commit a number of crimes. The UK's Office of Financial Sanctions’ Implementation (OFSI) issued recommendations to prevent such fraud.
- Background screening can help prevent such fraudulent practices by using employment history and reference checks, education history, identity checks, criminal records and global sanctions checks, as well as credit reports, social media screening, and other specific checks.
According to an article recently published in the Neue Zürcher Zeitung (NZZ), North Korean IT experts are applying for jobs in Switzerland and Germany under fake identities.1 The applicants utilize advanced tactics to mask their origins, including deepfake identities, proxy servers, and pseudonymous online accounts. They send their salaries to Chinese banks, from where the money is transferred to North Korea. With North Korea subject to international sanctions, this is another way to raise revenues for the regime.2
Recent indictments and recommendations
Recent indictments and recommendations
The US Department of Justice has recently announced indictments against 14 North Korean nationals for their involvement in a multi-year scheme to pose as remote IT workers to violate sanctions and commit wire fraud, money laundering, and identity theft. Beyond collecting salaries from US companies, the fake North Korean IT workers allegedly extorted their employers by stealing sensitive data, including proprietary source codes, and threatening to release it unless ransom payments were made.3 Based on these incidents, the United Kingdom’s Office of Financial Sanctions’ Implementation (OFSI) issued a series of recommendations on how to prevent employees from fraudulently gaining employment at UK companies to raise revenues for the North Korean regime. One way to mitigate this risk is conducting the so-called background screening.4
What is background screening?
What is background screening?
In an ideal world, every applicant is honest on a job application. In reality, however, many misrepresent themselves. Hiring somebody who is not qualified for a job could be a risk to an organization, especially for candidates seeking a position that requires high security clearance or a position of trust, such as in financial institutions, courthouses or governments.5
According to the Society for Human Resource Management (SHRM), the average cost per hire is USD 4,700. But many employers estimate the total cost of hiring a new employee to reach three to four times the position’s salary. This means that if a job pays a salary of USD 60,000, the company might spend USD 180,000 or more to fill that role. Therefore, the goal of a background screening as part of a hiring process is to verify the history and qualifications of potential candidates and to reduce the risk of costly bad hires.6 The process and number of checks differ between various countries due to different legal frameworks, cultural norms, and data protection regulations.7 A background screening process typically includes the following elements:8
- Employment history, reference checks: Validation of employment history, current employment status and assessment of applicant discrepancies such as omitted positions, tenure, job titles, etc. A confirmation of the candidate’s employment history is needed to verify if they have the necessary experience for the position. Combined with reference checks it also gives insights into their work integrity, ethics, and attitude.
- Education history: Confirmation of a candidate’s date of attendance at a particular educational institution and/or receipt of a particular degree. An education verification helps verify the candidate’s true level of education. For certain positions, e.g., medical doctors and pilots, employers must be able to prove that their employees have appropriate credentials.
- Identity check: Identity theft is unfortunately a common occurrence. An identity check can help determine whether an applicant is who they claim to be. Additionally, it can help verify if the candidate is eligible to work in a particular country.
- Criminal records and global sanctions check: Potential reports of a candidate’s criminal history, including felony criminal convictions, misdemeanor criminal convictions and pending criminal cases, as well as establishing if the candidate has broken any law with international law enforcement agencies (e.g., money laundering, terrorism financing, etc.). A criminal history can reflect the character of a person and can help an organization to determine whether a candidate could be a threat to customers or would create an unsafe work environment.
- Credit reports: Assessing the candidate’s financial responsibility and integrity (particularly relevant for roles involving financial management). It can help verify a candidate’s financial integrity, responsibility, and the ability to make financial decisions. It would be negligent to hire somebody with financial issues in a position that involves managing money.
- Social media screening: Reviewing the candidate’s online presence to assess their professional conduct and reputation. In a position where brand reputation is essential, a social media check helps form a rounded assessment of a potential hire. By comparing it to information provided by the candidate, social media screening could point out discrepancies.9
- Other specific checks: Drug tests, gamer profile checks, driving records.10
Based on a survey among nearly 6,000 HR professionals, checks of criminal records, previous employments, identity and education verifications are the most popular type of background screening.
Chart 1 shows that a social media background check seems to have a rather low priority among hiring professionals.11 One reason could be that not all information sourced from social media is verifiable. According to HireRight Corp., a background screening company, declining an applicant based only on a social media profile can lead to discrimination lawsuits.12 Typically, hiring teams are not trained to browse through social media networks and to extract information about an applicant. What somebody might find offensive, another person might like. In such cases, avoiding an unconscious bias and assuring a consistent recruitment process might prove challenging.13
Background check as an investment opportunity
Background check as an investment opportunity
In today’s globalized world, information is becoming a crucial asset. A recruitment process today is more than just “box-ticking”, hiring managers want to understand the candidate’s strengths, weaknesses, and integrity. A wide range of information needs to be analyzed and reviewed, especially in case of any inconsistent or even adverse information. Background checks are therefore an important tool in the hiring process that helps mitigate hiring risks, facilitating an objective and informed hiring decisions.
In our Security strategy, the topic of background screening is part of the crime prevention theme. As long-term oriented investors, we are shareholders of leading information services companies that specialize in data and analytics, with a focus on employment history checks, credit monitoring, identity theft protection, and fraud prevention.
1 NZZ (2024): Nordkorea verdient mit Informatikern Devisen, in: NZZ, 19.12.2024, p. 23.
2 SecurityWeek (2024): Fake IT Workers Funneled Millions to North Korea, DOJ Says, in: SecurityWeek, 12.12.2024, https://www.securityweek.com/fake-it-workers-funneled-millions-to-north-korea-doj-says/.
3 US Department of Justice (2024): Fourteen North Korean Nationals Indicted for Carrying Out Multi-Year Fraudulent Information Technology Worker Scheme and Related Extortions, US Department of Justice, press release, 12.12.2024, https://www.justice.gov/opa/pr/fourteen-north-korean-nationals-indicted-carrying-out-multi-year-fraudulent-information.
4 Office of Financial Sanctions’ Implementation (2024): Advisory on North Korean IT Workers, https://assets.publishing.service.gov.uk/media/66e2ec410d913026165c3d91/OFSI_Advisory_on_North_Korean_IT_Workers.pdf
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5 As an example, all applicants for US government agencies are required to undergo a background check, specifically a suitability review, or for some positions a security clearance (source: Yale Law School (2024): Before You Apply: Understanding Government Background Checks, blog, https://law.yale.edu/student-life/career-development/students/career-pathways/public-interest/you-apply-understanding-government-background-checks).
6 SHRM (2022): The real costs of recruitment, 11.04.2022, https://www.shrm.org/mena/topics-tools/news/talent-acquisition/real-costs-recruitment.
7 As an example, in Switzerland employers must obtain explicit consent from the candidate before conducting a background check. The scope of the background check must be clearly defined and communicate to the candidate (source: Kowalewski (2024): A guide to employee background checks in Switzerland, 12.08.2024, https://www.deel.com/blog/employee-background-check-switzerland/. Clearcheck (2023) provides an overview across various countries: Clearcheck (2023): What’s allowed in background screening around the world?, https://clearcheck.co.uk/whats-allowed-in-background-screening-around-the-world/.
8 ADP (2024): Background screening: What background checks that can help reduce your time-to-hire?, in: Insights, https://www.adp.com/resources/articles-and-insights/articles/b/background-screening.aspx. Depending on the individual country, a background screening check can involve much more elements. As an example, a background screening process conducted by Experian can involve up to 27 different checks (Experian (2024), https://www.experian.co.uk/business/regulation-and-fraud/background-checks#faqs).
9 Veremark (2024): An Overview of the various types of background checks, blog, 27.7.2024, URL: https://www.veremark.com/blog/a-comprehensive-guide-to-all-types-of-background-checks#social-media-behavior-check).
10 Not all information may be permissible or even necessary for every role: For example, a gamer profile check helps to weed out fake profiles and to ensure that only legitimate players are within the gaming environment. Driving records are typically not requested unless the applicant will operate a vehicle as part of their job, e.g. ambulance driver, school bus driver, etc.
11 A survey among 1.250 HR professionals confirmed the rather low priority of social media screening. Only 9% of North American HR professionals are conducting a social media screening. In EMEA and APAC, the number is at 14% respectively at 26% (source: HireRight (2024): Global Benchmark Report, p. 16).
12 HireRight (2018): 2018 employment screening: Key findings from the annual employment screening benchmark survey, in: HireRight, 29.3.2018, p. 17.
13 Experian (2024): Integrating social media checks into your recruitment practices, blog, Feb. 2024, https://www.experian.co.uk/blogs/latest-thinking/background-checks/social-media-checks-recruitment/.
About the author
Dr. Patrick Kolb
Senior portfolio manager, Thematic Equities
Patrick Kolb (PhD), Managing Director, has been a Senior Portfolio Manager for the Security Equity strategy since 2007. In 2005, he joined Credit Suisse Asset Management, now part of UBS Group, where he initially focused on the industrials and technology sectors. Patrick graduated from the University of Zurich with a major in Finance and then worked as a research assistant at the Institute of Banking and Finance at the University of Zurich before earning his PhD in Financial Economics.
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