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Business KYC: A Seamless Business Verification For Risk Mitigation

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Business KYC plays a crucial role in fraud mitigation in the business world. However, KYC regulations were insufficient because there was a loophole in which businessmen were taking benefits. Politically exposed persons such as PEPs, fraudsters, and criminals had ease in doing business under shell companies. In 2016, FINCEN introduced Know Your Business regulations under the umbrella of due diligence to address the loopholes.   

Any corporation making bonds with other companies in the US must rely on business KYC procedures. Not only customers but businesses need to comply with FATF-recommended regulations. The date of anti-money laundering is traced back to the Bank Secrecy Act BSA of 1970. This act mainly focuses on banking regulations to detect suspicious transactions that are more than $10,000 per day and their reporting. Another prominent development of financial institutions was done after 9/11 terrorists, that is, the Patriot Act in 2001. According to this act, financial institutions must collect information on all individuals at the time of account opening.

Due Diligence Through KYC For Business

Leaked Panama Papers raised the main controversy in 2016 when big names were found involved in money laundering. Therefore, the due diligence requirements and regulations were enhanced under the Patriot Act. Business KYC due diligence is now unavoidable for banks, fintechs, and other businesses when onboarding the companies.  

Which Corporations Need To Conduct KYB?

KYC for business customers has become essential for all corporations before onboarding the company. Business KYC helps prevent fraud and financial crimes and saves money from fines. Businesses and financial institutions must comply with KYC checks to build trust in the market. According to the 5th AMLD, KYB is not only for banks but for other institutions, including:  

  • Financial institutions

  • Online banking

  • Auditors

  • Tax advisors

  • Credit institutions

  • Notaries

  • External accountants

  • Asset manager 

  • Crypto marketplaces

  • Trust 

  • Gambling companies 

  • Estate agents

Additionally, organizations that do not need to comply with AML checks by law must perform KYB checks. The implementation of KYB checks helps organizations to keep frauds at bay. It assists in verifying the company's legitimacy to secure financial relations.

What Is the KYC Business Process?

A company must comply with anti-money laundering AML and counter-terrorism financing regulations for business verification. Here, explore how the business KYC process is conducted!

  • Collect the Data

It includes: 

Name: business legal name that is registered in databases.

Address: the business's address, which may be different from the registered address. In the US, companies can register at other locations, such as Delaware or Nevada, and operate elsewhere. 

Taxpayer Identification Number (TIN): In the US, a TIN is an Employer Identification Number EIN. EIN is a specific number businesses use to open accounts and other legal purposes.

  • Business Identification and Verification

For business verification, the data and documentation are collected and analysed. The business kyc documents check-in cross-reference to identify the legal status of the company. 

  • Identification of Ultimate Beneficial Owner UBO 

In the KYB process, UBO identification and its verification is an important step to prevent fraud. Once the UBO is identified, KYB checks are applied to him to understand his legal status. UBO with shares of 10 to 25% in the company, must comply with AML regulations.

  • Enhanced Due Diligence

Companies having risky profiles because of involvement in money laundering or any other financial crime must require enhanced due diligence EDD. Enhanced Due Diligence reduces the potential risks and threats in the future. 

  • Adverse Media Screening

Adverse media screening is also an essential part of due diligence. If news is published on television or social media, it must be cross-checked with databases. This helps build a reputation in the finance industry.  

Conclusion:

Business KYC involves a thorough investigation of the company before onboarding. KYB checks are applied to clarify the financial and legal status of the companies. For business verification, data and documentation must be collected to determine whether the company is legitimate. All businesses, the fintech industry, and other organisations must rely on the business KYC process while building financial relations. Business KYC identifies any potential risks and threats without any delay. So, the corporation will remain safe from legal consequences such as hefty fines and sentences.

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