Know your business serves the same purpose as KYC in that it allows organizations to analyze the AML/CFT risk posed by new and current business interactions. KYB differs from KYC as it focuses on businesses and suppliers first, before moving on to the customers. The KYB or verifying companies procedure allows businesses to evaluate the entities with whom they do business and decide if they are genuine or being used to mask the identities of shareholders for nefarious motives.
As a result, KYB checks concentrate on ultimate beneficial ownership to disclose who benefits from dubious businesses’ financial actions. Criminals and other high-risk persons may, for example, establish companies in weak-regulation foreign jurisdictions to transact privately with legal companies in other areas of the world while avoiding the scrutiny of regular AML/CFT safeguards. Firms must also know whether a company or its personnel are subject to global sanctions, have really been subjected to political corruption, or have been the focus of news reports implying criminal behavior.
Although particular requirements vary by country, KYB or company verification regulations typically require enterprises to conduct appropriate due diligence, which includes gathering and analyzing a variety of information about the companies with which they have the business. Business verification services may need identifying details such as the following to demonstrate beneficial ownership:
- Company address
- Licensing documentation
- Registration documents
- Identities of directors as well as owners
In order to undertake KYB checks, businesses can use a variety of private and public resources. Official documents such as passports, driver’s licenses, and bank statements, as well as proofs of dates of birth and address, may be required to verify individuals employed by or linked with businesses.
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Company verification must be considered as an ongoing AML procedure in addition to the necessity to develop UBOs. It means that companies must do KYB throughout a business agreement, checking companies against Politically Exposed Persons and sanctions lists and any other indications that they may be associated with financial crimes.
Which Companies Require KYB
All the financial entities that handle money transfers, like banks, are obligated to carry out KYB procedures. Companies must verify the commercial and financial data of their global partners. Companies can defend themselves from document fraud and ensure transaction security this way. Furthermore, KYB procedures must be completed in their entirety to comply with the current money laundering requirements. Financial institutions that follow integrate AML screening software in their security systems can avoid fines and reputational damage.
Complying with KYB Rules
Firms must build risk-based AML procedures to comply with KYB standards and equivalent laws enforced in countries around the world. In practice, this implies that businesses should analyze the risk level posed by their business ties and implement a proportionate anti-money laundering strategy that includes all or some of the below-mentioned checks:
Due diligence: In establishing and verifying UBO, companies need to conduct appropriate due diligence on the businesses with which they’ve connections. Firms should conduct enhanced due diligence and AML monitoring if there’s a greater AML risk.
Transaction monitoring: Several transactional activities could suggest that a company is engaging in terrorist financing and money laundering. Money laundering red flags include transactions with unusual frequency or volume, or that fall just below reporting criteria, and those involving high-risk countries.
Sanctions Screening: Companies and their workers should be screened against global sanctions lists including the UN sanctions list, the EU sanctions list, and the OFAC sanctions list.
PEP screening: Companies that are subjected to political corruption could have a higher risk for money laundering. So, all the enterprises must screen clients to check whether they’re politically exposed persons or not.
Adverse media monitoring: Companies should be monitored for their involvement in bad media stories that could imply criminal conduct. Monitoring should be done on a regular basis and should cover conventional screens and newspapers and magazines as well as online sources.
Automated KYB Solutions
Firms must gather, analyze, and manage large volumes of businesses data with which they have interactions as part of the verifying businesses process. Manually performing KYB checks cost a lot in terms of time and effort, and it also raises the risk of human error. To address this issue, businesses should consider using an automated KYB system, integrating intelligent technology solutions into their AML infrastructure to complete the required tests and processes quickly and efficiently as compared to human compliance professionals.
Aside from automating the business in terms of speed and efficiency, AI and machine learning technologies may help financial institutions discover patterns in the AML data and respond to unusual changes in business and staff behavior more correctly and effectively.
Finally, by incorporating advanced technologies into the Know Your Business procedure, companies will continue to better adapt to changes in regulation like the planned 6AMLD or criminal tactics in the future, while maintaining a high level of KYB compliance.