In the era of compliance KYC or customer identity verification came into place to curb identity frauds and block the passage of money to criminals. Businesses are obliged to perform KYC verification on all onboarding customers. It will ensure them that the customers they are dealing with are trustworthy.

The process of KYC is simple and easy, the customer needs to upload a selfie and id document image to complete his KYC. The specified details are extracted from the verified document. Upon full verification, the customer is allowed to use the business services otherwise not. 

But before some years, businesses were required to verify their partners, investors, and other stakeholders. They don’t know that the partner they are trading with is legitimate and clean. There was a chance that a fraudster or a money launderer joined the business as a key stakeholder. The criminals were clever enough to use these loopholes for their criminal proceedings. They started cooperating with businesses through fake identities and perform scams and money laundering there.

To fight this type of crime and the verification negligence a Corporate KYC or Know Your Business was introduced.

Know Your Business

European Union’s 5th Anti-Money Laundering Directive requires businesses to perform KYB on affiliating businesses. The 6th Anti-Money Laundering Directive focuses on the penalties and sanctions due to non-compliance with these regulations. 

As in this fast-moving world, a business can’t survive alone, it needs to connect with other businesses. Like an e-commerce store needs a shipping company or a hospital needs a pharmacy. The problem is how will they verify other businesses and make sure that they are legitimate. As KYC is done by checking documents, business verification can also be done using documents. This process is also done by software like KYC, the KYB verification software is robust and artificially intelligent that can spot any fraudulent attempts. With the modern attempts to fake and forge documents, AI is also evolving. It can find smaller to smaller changes in the genuine document. 

Below are the steps of KYB checks:

Business Identification

This is the first step of KYB, it includes primary information of the business to be verified. The background history, business address, business nature, registration number, and trademark is identified and verified. 

The ultimate beneficial owner (UBO) of the business is verified through KYC and screened through AML watchlists. It includes the financial information of the business, its banking affiliations. For instance, which bank is it using and checking that bank also. The banks are also checked to eradicate money laundering risk. The permission letters issued by the government are collected and verified. If the business is operating in various countries, permits from all the states are required.

Business Filings 

These are the documents that include data of the organizational authority of a business. It includes the information of management and their data also. The information on the tax returns and insurance claims is gathered. The annual reports, shareholder registers, and other internal business documents are verified in this step.

Business Networks

The corporate linkage of the business, its connections with other businesses are known as business networks. It partners, parent, child, and sister companies data is analyzed in this step. For a better approach, KYB checks are also applied to a business network to check its genuineness. 

Business Statements

These are the documents having information about the change in management. This data is very helpful for verifying UBO and other stakeholders. There may be a case where a business may have clean management but some criminals join it after a while.

Summing It Up

The motive is to point shell companies, the companies that are made by money launderers for cross-border funds transfer. These companies only exist on paper, there is no background or financial history of these types of companies. KYB assists in identifying shell companies and saves businesses from linking with them.

KYB helps in cleaning the market from illegal and fraudulent businesses and gave a boost to legitimate businesses.