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Business identity theft, money laundering, and tax evasion are some of the primary concerns and challenges of today’s fast-paced entrepreneurial world. This necessitates the need for effective business verification processes to ensure that companies are effectively combating these monetary challenges while saving their reputation.
However, the role of KYB regulations in this regard is quite prominent in streamlining the company’s financial operations while reducing the risk of potential financial losses to companies worldwide. Keep on reading this article, get an in-depth analysis of business verification, and discover how KYB regulations play a significant role in saving organizations worldwide.
Know Your Business: A Quick Glance
Know Your Business, also recognized as Corporate Verification, is a comprehensive confirmation process that facilitates worldwide organizations in verifying their potential business partners. The primary goal behind the approach is to make sure and provide a transparent business and financial environment.
In simple words, this is a comprehensive process that frequently verifies provided details of organizations such as a business’s physical address, the actual source of funding, all licensing details, contact number, etc. In addition, KYB regulations also demand business owners and enterprises to perform location-based critiques of their future partners.
A Comprehensive Background Overview
After the Bank Secrecy Act (BSA) in 1970, the regulations regarding Anti-Money Laundering (AML) got strong roots in the US. It involves careful monitoring of transactions that seem doubtful and verifying transactional activities across countries and businesses. Furthermore, the act requires companies to disclose all the payments worth more than $10,000 cash.
Moreover, during the 9/11 events in 2001, when the economy of the whole world was shaking, enterprises had to comply with significant Anti-Money Laundering (AML) regulations under the Patriot Act. This requires banks and financial organizations to collect extensive details regarding every individual whose account already exists or is about to exist.
Nevertheless, the Panama Papers incident indicated that the Patriot Act had some shortcomings that left loopholes for fraudsters to conduct fraud. It clearly indicated that the business world needs stricter due diligence regulations to prevent deceptive foreign businesses from using illicit money. New Know Your Business regulations came into place by the US government in 2016 for company users.
Implementing KYB Regulations
A comprehensive Know Your Business (KYB) verification process requires organizations to carry out the following steps to ensure compliance with KYB regulations:
Confirmation of Company License
Ensuring the legitimacy of business registration and legitimacy is an integral part of the Know Your Business verification process. Examining a business’s registration status or further licensing documents makes sure that financial institutions and other enterprises are operating legally. Furthermore, when businesses pass through this phase, they can rest assured that the company they are collaborating with is genuine and not a fraud.
Extensive Address Verification
Organizations must check and verify the actual business addresses to verify that the respective company actually exists at the provided address. The procedure further makes sure the organization is genuine and does not merely exist on paper.
Validation of Contact Number
Phone number confirmation authenticates the reality of the official telephone numbers documented in the details of an organization’s beneficial owner. Although the process looks like a simple and quick check, it is vital to ensure that the individual who actually owns the business and someone who works with the industry is authentic.
Investigation Regarding Funding Source
It is essential to identify and verify the sources of finances of a company to ensure that their UBOs are legitimate. Furthermore, it also guarantees that the Ultimate Beneficial Owners are not involved in any sort of illegal activities such as money laundering and terrorist financing. The comprehensive examination further informs about the monetary honesty of a corporation.
Comprehensive Risk Assessment
The actual location of a company leaves a significant impact on the risk profile of a business. Hence, there must be extensive due diligence for a company to assess further risks. For instance, If a company is found in a location associated with wrongdoing, illegal actions, or financial crime, it is relatively more unstable, and the organization must conduct further research before accomplishing any business or collaboration there.
Final Words
With more instances of business fraud in today’s industrial horizon, KYB regulations are of significant importance in meeting these financial challenges. It requires organizations to keep track of the activities of their business partners as well as individual clients. However, the automated Know Your Business verification approach massively assists companies in ensuring compliance with extensive regulations while mitigating the risk of business fraud.
