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Business Verification Process: Why it’s Important and How Does it Work?

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Business Verification

It is identifying the company before onboarding. Financial institutes and businesses, such as banks, cryptocurrency, online gaming, and others, must comply with anti-money laundering (AML) regulations. These obligations are designed to fight against money laundering, smuggling, and other illicit activities.

Why Process is a Must? 

Know your business (KYB) process is an initial and vital step toward the AML/CFT regulations. KYB is the solution to prevent money laundering and illicit activities. It is a process for financial institutes to collect information about the business, verify its actual identity, and ensure it is not involved in any illegal activities. Verifying this information also ensures business customers comply with AML/CFT regulations. This is a critical kick point in the B2B business environment against fraudulent activities such as drug trafficking, terrorism financing, and disguising illicit gains. 

The KYB is essential when forming new relationships and complying with measures. It is compulsory for all financial institutes to follow AML/CFT protocols when they are dealing with new business. This will bolster their strength and enhance customer trust in the banks. 

What are AML/CFT Regulations?

Anti-money laundering (AML) policies are intended to keep banks and financial institutions safe from fraud. The United States took advanced steps in 2001 as the USA Patriot Act, to overcome money laundering and terrorism financing. According to the act, all financial institutes must meet the AML regulations to curb money laundering internationally. Implementing the AML/CFT regulation protects and enhances companies’ customer loyalty, as well as builds a trustful environment between customers and businesses. The main aim behind the AML regulations is to improve the global financial ecosystem to avoid identity theft, money laundering, and terrorism financing. 

The United States is the leader of all countries fighting against money laundering. Despite this, up to $300 billion is evaporated from the US financial ecosystem as laundered money. On the other side, AML compliance costs $25.3 billion to US companies per year. The US is one of the first countries who upgrade their AML laws and create a trustworthy environment for global trade. According to the US Patriot Act (2001), under section 326, verifying customer identity and enhancing due diligence is compulsory for financial institutes and businesses. The US patriot act improves security by providing a wide range of tools, these legalizations protect America and the international financial system from terrorist financing, money laundering, and illicit activities. To enhance the US Patriot Act, the AML and CFT regulation authorities established two regulators,monitoring businesses and ensuring they comply with all regulations.

Financial Crime Enforcement Network (FinCEN)

FinCEN is the authority that works under the US treasury department, and it reports to the secretary of the treasury related to terrorism and financial intelligence. The FinCEN has a mission to safeguard the national system and combat money laundering and illicit funds. It protects national security by gathering and analyzing various information according to AML regulations. Moreover, it advances national security and upgrades the strategic use of financial authorities. It also counterparts other worldwide agencies to secure the dignity of a global ecosystem.  

The Office of Foreign Assets Control (OFAC)

OFAC regulators control the administration and enforce other countries’ organizations or companies to comply with the AML regulations in the United States. It also keeps a close eye on high-risk countries in order to combat money laundering, terrorist funding, and drug trafficking. OFAC can customize rules according to the lands, these can be rigid or convenient, depending on the industry and country risk assessments. It can block assets and bolster trade restrictions to accomplish foreign regulations and national security.

How KYB Works? 

KYB before client onboarding is compulsory for financial organizations as it protects them from fraudulent activities. Digital corporate verification also enhances the compliance procedure, which secures companies from unwanted fines. Noncompliance with AML regulations, in more complex cases, can lead business owners to be sentenced to jail. Online platforms straightforward this complicated task with the advanced technology of AI framework. Given below is the overview of how the online KYB verification checks are performed:

  • Registration 

To complete the KYB process, customers must register themselves on the platform. For the registration, they have to provide the business name, registration number, contact information, and official email.

  • Document verification 

After registering, customers can submit documents. For this, they only have to scan the copies and upload that on the platform. They must upload the legal papers, which the onboarding company can further verify. The KYB v software can attest various documents such as registration papers, tax associations, licenses, and detail about it beneficiaries. the software verifies all directors’ and ultimate beneficial owners’ (UBOs’) identities to ensure they are not participating in illegal activities. 

  • Compliance Screening 

Attestation of the documents ensures the company is legal and all the paperwork is authentic. Compliance screening is a step to cross-check the identity information of beneficial owners against watch lists, such as, AML and politically exposed persons (PEPs). For adequate , it examines financial transactions to detect suspicious activities. 

Key Takeaways From It

It is a critical step before onboarding clients for building trust and conducting risk assessments. It assists companies in making decisions confidently and investing in other businesses without hesitation. KYB process also helps companies combat money laundering and other financial scams which can positively affect the worldwide economy. 

RELATED ARTICLE: KYC Verification – How Businesses Ensure Customer Security

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