Six Degrees of Separation Why You Need to Be Smarter with Data

Posted on, 02/03/2021


Six degrees of separation is the idea that all people are six (or fewer) social connections away from each other. Also known as the six handshakes rule, it’s a concept that’s gained special significance in the age of COVID-19 and in this article I explore the application within business too.

Here’s a quote from an article in the British Medical JournalExternal Website. Opens New Window from Doctor Sukhpreet Singh Dubb:

 

The six degrees of separation theory says that any one person is only six connections away from any other person. An alternative view I have found is that a patient with COVID-19 may only be six spheres of relationships away from healthcare workers”.


The article goes on to describe these six relationship spheres. The first is the general public in the outer sphere, then members of the NHS, then colleagues, extended family, immediate family, and finally yourself. Six degrees may connect us to celebrities or royalty. But it also connects us to the healthcare workers who are valiantly battling the virus, day after day.

But I think we can take this further. The idea of interconnectedness and the relationships between seemingly unconnected ‘spheres’ carries lessons that touch not just our personal lives, but our business lives too.

Taking advantage of complexity

Organisations are engaging with an increasing number of third partiesExternal Website. Opens New Window. Global business networks have become more complex – and interconnected – than ever before.

Nowadays, a third party may simultaneously be a customer, supplier, alliance partner, and even a competitor. Like the COVID-19 virus impacting our ‘spheres’, bad actors can manipulate interconnections to obfuscate their identities and achieve their ends.

Connectivity comes with complexity, which criminals will try and take advantage of to hide their true intentions. And you need not look any further for evidence of this than the current situation with job retention, furlough and payment schemes driven out of necessity by governments across the globe.

The UK government’s British Business Bank launched the Bounce Back Loan SchemeExternal Website. Opens New Window (BBLS) in early May to enable smaller businesses to access finance more quickly during the COVID-19 outbreak. This is a fixed-rate loan of up to 25% of turnover and interest-free for the first year. Around 1.26millionExternal Website. Opens New Window Bounce Back Loans were approved between May and October 2020 - and that’s beside the standard loans a bank would offer.

It’s been allegedExternal Website. Opens New Window that about a quarter of the loans would not have been made under normal lending practices. However, the Treasury instructed banks not to perform standard credit checks checks — apart from basic viability and fraud screening — to speed up the payments and help stave off bankruptcy for companies unable to endure the lockdown.

Inevitably then, there is concern that this scheme is open to a high level of risk. In fact, UK banks expect 40 – 50% of these loans to defaultExternal Website. Opens New Window. And when on average a business borrows around £30,000External Website. Opens New Window, this is extremely costly.

Besides the risk of companies going out of business, there is also the risk of fraud.

This is related to so-called ‘Phoenix’ companies, where businesses ‘disappear’ in the 12 months before they have to pay back their loan, then re-emerge as the same or a slightly different business, with the owner pocketing the original loan. There is a chance this could happen multiple times with the same business, or that an individual could apply for multiple loans for multiple businesses that they own.

Banks have a big role to play in ensuring government support and stimulus packages are delivered quickly and efficiently to those who need it. But doing so while remaining vigilant to crime is not always easy. Clearly, identifying when people or businesses are potentially the same or connected could support this vigilance.

What are the barriers to spotting suspicious connections?

One of the biggest difficulties in weeding out bad actors is investigating duplicate data. Duplication creates confusion, erodes confidence and increases caseload. Whether you are building a picture for onboarding or trying to drive clarity around potential financial crime, if two or more entities look the same but are not identified as such, there could be foul play hiding beneath the surface.

Another consideration is the increasing need to make decisions on people in the context of the businesses they are associated with. Decisions cannot be based on a single connection between one person and the organisation they are the stakeholder of. In order to untangle Phoenix businesses for example, you need to investigate outside the sphere of a single relationship and look for signs that an individual could be involved with multiple businesses. 
By reviewing data on people and their networks – rather than just entities – you gain a broader understanding of an individual’s behaviour and sphere of influence.
 This means being people-centric rather than company-centric. By reviewing data on people and their networks – rather than just entities – you gain a broader understanding of an individual’s behaviour and sphere of influence. The benefit of this approach is that it can reveal seemingly unconnected businesses that do in fact have a common beneficial owner, and it will help you reveal networks of suspicious businesses that would otherwise appear legitimate. Finally, and perhaps most importantly, is the need for efficiency. Time is limited, and in order to connect the dots accurately and efficiently, now is the time to look at your working practices. automating simpler tasks and automatically monitoring the companies you do business with, teams are freed up to review more complex cases.

Automation coupled with the use of third-party data supports the more distributed working practices we have seen since the start of the pandemic as information can be checked remotely.

Overcoming the challenge

So how do you go about using data more effectively? Well firstly, decide on which data sets are the most useful.

Secondly, think about how to bring data sets together. Fortunately, many tech companies offer services and workflow solutions that do just that. However, formatting and managing data to feed into these solutions so that you get an accurate output on which to base decisions can be a challenge. That leads to the final point: data accuracy.

A good level of governance is needed to ensure your data is accurate and usable. Start by building a ‘ground truth’ – a sample set of correct data on entities and individuals, for example from a third-party provider like Dun & Bradstreet, that all other data can be verified against. Once you can trust your data, you will quickly be able to scale.

Once you start using data smarter, you’ll find multiple aspects of compliance and day-to-day activities become much easier. You’ll be able to see the true story behind your data, and bad actors will find it harder to hide.

The idea of six degrees of separation may be uncomfortable in the context of COVID-19, but with the right data, from a business perspective it can empower you to see the world as it really is.

Discover our Direct for Compliance solution for quick and reliable data for decision-making, management of regulation complexities, and ongoing monitoring. It provides a single source of data for identification, verification, screening, and monitoring of customers or suppliers through modern APIs that integrate with existing workflows.

 
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