Business Verification – Validate Ultimate Beneficial Owners
Digital technology urges adequate business verification processes to secure financial institutes and companies from bad actors. The organizations should attest to in-depth information about the other business before onboarding them. It ensures they establish relationships with legal companies that their partner has not been involved in illegal activities.
Efficient Know-Your-Business verification empowers organizations to validate the B2B clients before onboarding to establish a strong relationship with the clients. Online scams are promptly rising with time, and with more advanced techniques, cyber attackers can easily manipulate the company’s security systems. They lead businesses to the loss and negatively impact their business.
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In-Depth Overview of Business Verification
It is a relatively new and unknown concept for companies to protect from financial crimes. However, Know-Your-Customer (KYC) has protected organizations from bad actors since the 2000s. Business verification is identical to identifying customers.
It is used to verify the companies before onboarding. KYC is used in financial institutes and organizations to verify individual clients. Companies ensure the business’s legitimacy before starting a relationship with them. Business attestations raise the bar for the criminals who launder money through shell companies while evading anti-money laundering regulations.
The international regulatory authorities, including the Financial Action Task Force (FATF) and the US Financial Crimes Enforcement Network (FinCEN), issued the KYB compliance in 2016 while mandating businesses to verify the Ultimate Beneficial Owners (UBOs) before making ties with partners. In simple words, it is to demonstrate that the business working with another company has a standardized method to review and determine if that enterprise is genuine.
Importance of Business Verification
This process is essential in helping companies verify the other business partner’s source of funds and operational activities. It secures the organizations from becoming victims and is vital to compliance with regulations. Financial institutes must uphold the AML measures of national or international watchdogs.
These obligations include ensuring the protection of customer data, proper management of financial operations, and compliance with related regulations. Companies must also have appropriate security measures to protect their data from unauthorized access or misuse.
KYB Checks to Verify UBOs
As per the latest KYB compliance requirements, it is a must for companies to verify owners of the companies, including shareholders and their financial statements. It ensures that the companies and their shareholders are both legal and not included in illicit activities such as money laundering, corruption, and tax evasion.
Business verification, including the UBO’s attestation, is essential when companies onboard Politically Exposed Persons (PEPs) or from high-risk nations. Below are internationally followed KYB checks.
All Companies gathered the required information about the businesses such as address, register number, license, structure of shareholders, current status, and trademarks. It assists the financial institutes that the company is valid and exists in the real world, not a shell company.
Verify the Documents
Once the information is gathered, verify these documents by checking their validity and ensuring their originality. For that, attest to the security features on the papers, such as fonts, signatures, borders, and other visible security features depending on the documents. After verifying these papers, the process continues for further rigid measures.
Scammers can easily duplicate anyone’s data and disguise their identity. Companies scan the papers and convert written data into computer-readable text to cross-check these data against original government databases. It ensures the data written is also the same as it is stored in the records. It also assists companies in checking the company’s shareholders’ names in the international watchdog’s databases.
Every person who has 25% shares in the company is a UBO. Companies need to verify these and disclose their identity for adequate business verification. They must prove these UBO’s identity, including financial statement and funding source.
Corporate transparency disclosed various details about the business owners and the parent or child company of the owners. This helps to identify any potential risks associated with the company, such as money laundering or terrorism financing. It also provides accountability and transparency, which can help protect the company’s shareholders from fraud and abuse.
Real-time monitoring of business statements ensures financial institutions that nothing illegal is happening in the company. This will confirm whether the shareholders of the company have changed. It also provides months’ latest profit statements to assist companies in supervising companies’ suspicious activities. Upgradation of the company directors also impacts the business structure, which urges financial institutes to monitor follow-up information about the company.
In the Nutshell
Business verification plays a vital role in various industries, including medical insurance, cryptocurrency, digital businesses, e-commerce, as well as financial institutes. Businesses must regularly update their records to protect their security system from financial crimes.
Business verification also assists companies in building a trustworthy environment between clients, including enhancing security, streamlining onboarding experience, and securing collaboration. Further, robust company verification helps financial institutes, organizations, and other companies comply with applicable laws and regulations.
December 12, 2023