Corporate Screening: A Way Forward to Combat Business Fraud

In order to comply with Anti-Money Laundering (AML) requirements, Know Your Business (KYB) identity verification processes are just as necessary as Know Your Customer (KYC) procedures. Therefore, companies that work in the banking or another financial services sector must ensure a comprehensive corporate screening process in order to prevent financial fraud. Discover who must do KYB checks and the steps the company must take to ensure compliance with standard KYB regulations. 

Corporate Screening via KYB Verification

Financial services firms are required by Know Your Business requirements to confirm the identification of business customers who want to create accounts. Corporate screening aims to confirm the legitimacy of prospective business customers and identify the Ultimate Beneficial Owner (UBO), the person who ultimately owns or controls the company. KYB rules were introduced in the US in 2016 to plug gaps in AML requirements enacted after the World Trade Center assault in 2001. KYB inspections stop criminal and terrorist organizations from laundering money via front firms.

Know Your Business (KYB) Requirements

Financial institutions must comply with KYB laws by:

  • Determine who the beneficial proprietors of company clients are (legal entity customers, legally speaking)
  • Check the beneficial owners’ identity

Standard certification forms are usually used to gather the necessary data, while certain companies may use other strategies. Financial institutions are permitted to depend on helpful information supplied by clients unless there is cause for concern over its accuracy. In contrast to KYC processes, customers are permitted to utilize copies of their identification papers. Organizations must keep information on beneficial ownership on file.

Corporate Screening Guidelines for Best Practices

Adhering to recommended methods will maximize efficiency and guarantee compliance when implementing KYB processes. The following are the top five essential best practices to adhere to:

  • Get a Score for Customer Due Diligence

Regulations about Customer Due Diligence require a risk assessment when a customer’s identification has been confirmed. The risk assessment needs to consider variables, including the kinds of goods and services the seller offers, the types of companies they serve, and whether the seller is based in a place known to be a refuge for money laundering or terrorism.

Developing a scoring system that weights various risk indicators is the most accurate approach to completing a risk assessment. Then, to save time, organizations may automate regular risk assessment tests. Following the identification of high-risk, companies should implement Enhanced Due Diligence (EDD) processes that make use of manual approaches as well as extensive corporate screening processes.

  • Conduct Sanctions Screening

Businesses should be checked against official sanctions lists as part of the Corporate Due Diligence risk assessment process. Examples of these lists include the Treasury Department’s Office of Foreign Assets Control (OFAC) Sanctions List, as well as equivalent lists released by other nations and international organizations like the United Nations. Businesses and their staff should both undergo sanctions checks. However, the most effective approach to sanction screenings is an automated software solution that verifies current databases.

  • Screening of Politically Exposed Persons (PEPs)

Verifying politically exposed person lists is another step in the corporate screening process. These people work in politically sensitive jobs where they run the danger of being recruited for espionage and bribery. Appropriate software solutions can conduct PEP checks automatically.

  • Conduct Negative Media Screenings

Adverse media screenings look for any unfavorable material on companies or connected parties that can point to a possibility of money laundering by searching outside sources like newspapers. The most effective method for doing unfavorable media screenings is to utilize an automated search engine that uses artificial intelligence to sort through data because of the vast quantity of information that is accessible.

  • Ongoing Transaction Monitoring

Financial institutions must continue to monitor transactions to follow up on KYB verification checks as mandated by business verification laws. Procedures for identifying and reporting suspicious transactions, such as those involving significant sums, volumes, or frequency of transactions, should be part of these follow-ups. Financial institutions must also routinely confirm that the consumer data they have on file is correct and up to date.

The Bottom Line

It is difficult and impossible to manually do all the checks required to fulfill Know Your Business compliance. There are just too many databases to review, too many potential red flags, and not enough staff or time to address them all. Automation is necessary to reduce fraud and legal risk, as well as to ensure a proper corporate screening process. Professional KYB verification service providers make business identity verification easier by using artificial intelligence and biometric techniques to swiftly gather and validate the necessary data.

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