About everyone in the finance industry has known to KYC (know your customer). The method of assuring the identity of the onboarding customer is called KYC. For identity verification, KYC demands documents approved by the government having all the personal information of a person. The process of KYC is performed by online software powered by AI, OCR, and NLP. KYC is done to eliminate fake identities, mitigate frauds, and deal with legitimate customers only. This helps businesses in having a crime-free and trustworthy corporate environment.
Another process associated with KYC is anti-money laundering screening. Businesses perform AML screening on customers after KYC verification. The motive is to make a business clean from illicit funds. The involvement of black money in business has damaged their reputation and caused fines and sanctions on them. Fines are imposed by regulatory bodies over weak or no compliance with AML and KYC laws. Banks and other financial services providers are mandated to act upon these laws and regulations.
KYC and AML ensure the legitimacy of customers but if a partner business is involved in money laundering. In this world a business can’t survive alone, it has to deal with other organizations. Mutual funds, mergers, joint ventures, and partnerships are examples of corporate dealings. Another can be just selling and buying products from a business. Corporate KYC or know your business can be used for the verification of a business.
Know Your Business for Verifying Corporate Entities
KYB is a process of purification of the corporate environment by verifying all the partners and linking businesses. It is obligatory for all financial institutions and other AML regulated entities to conduct KYB verification. This will help in spotting fake and fraudulent businesses and the ones who are involved in money laundering.
The traditional methods to launder money become tough due to the surveillance of regulators. Criminals now create an entire organization for this, front business and shell companies are examples of it. The companies that have no employees, address or track record but exist only on paper are called shell companies. The businesses functioning fully in the market with all features of a legitimate business but have heavy involvement of black money are known as front businesses. In front businesses, the white and black money are blended to make it appear legal. They are used for the placement of illicit money in the financial system. Both of these entities operate illegally and fully or partially run by criminals.
The process of KYB is complicated and differs by the type of business. For example, an international delivery company and a local vendor business will be verified in different ways.
Understanding the complexity, currently, there are two ways of performing KYB.
The legal or the security department performs KYB checks on a business. This includes widespread research from different data sources. The legitimacy of the business is verified by the documents submitted by the business itself and the government approval letters. The bank statements and other financial documents are checked by the team manually. The registration number and address are confirmed. The personal information of the UBO is recorded. The team analyzes the gathered details and gives their feedback.
Manual verification takes more than one day for competition. It satisfies small businesses with nearly fewer verification checks. One verification costs from 20 to 200+ euros. The cost also depends on the company type and size.
This verification is performed by the online software and cross-checked by humans. It includes document verification and company registration checks. This verification takes a few hours to complete and takes very minimal resources contrary to the manual method.
The UBO is checked by KYC/AML laws, first, his identity is verified then screened by watchlists. It can be used on businesses with large infrastructure and multiple verification checks.
Wrapping it Up
Like customers, the businesses also possess the risk of money laundering some say they have the higher. The money laundering activities can be controlled using know your business checks.