For the past 20 years, Know Your Customer (KYC) regulations have helped drive and improve fraud prevention strategies for companies around the globe. The original KYC requirements were developed under the Bank Secrecy Act of 1970, which required financial institutions to establish anti-money laundering programs specifically targeted at financial risk mitigation and fraud prevention. These KYC regulations focus on the assessment of individual customers, and to this day have saved companies millions of dollars by identifying potential sources of criminal activity, with one major caveat: businesses were not held to the same verification standards as individual customers.
This oversight in KYC verification gave rise to a new type of financial risk. Criminals began creating shell companies to hide their identities and defraud other businesses. While customer identities were being closely monitored, business records were only briefly examined, meaning criminals could use these shell companies to commit fraud or launder money without fear of intrusive screening or watch lists.
Thankfully, with the introduction of Know Your Business (KYB) in 2016, the reinforced regulations created under 5AMLD (Anti-Money Laundering Directive) and the most recent 6AMLD that will increase penalties for KYB noncompliance, this criminal loophole is quickly ending.
How does KYB help your company?
Know Your Business, or KYB, is the due diligence review of businesses to mitigate money laundering and criminal activity. KYB tools are a key component of fraud prevention that also help keep your company in compliance with federal and global business verification standards and serve to increase customer safety and trust. The process of KYB is like KYC in that it is a precautionary practice that assesses suspicious financial transactions, activities, or associations.
Banks, FinTech, commodities brokers, securities dealers and mutual funds are all required by the FINCEN Customer Due Diligence Final Rule to perform KYB checks, but KYB can be utilized by any company in any industry that works with another business. Know Your Business is particularly necessary in the B2B sector, where companies must be extremely vigilant of their customer onboarding processes. Current KYB regulations provide companies with a standardized method to verify any business conducting financial transactions, as well as a method to assess the legitimacy and risk of the people behind each business. This includes examining the stakeholders, suppliers, consultants, and consumers.
KYB filters out shell organizations and ensures that your company does not associate with businesses involved in illegal financial activities. The updated regulations also provide insight into any money laundering or financial terrorism associations of individual employees to make sure that no one your company works with is on any watch list or sanction list. By implementing KYB, regardless of the niche, industry, or scale of your company, both you and your customers can rest assured that the businesses you work with are real and legitimate businesses. Taking steps to create a KYB process and comply with KYB regulations can ensure that your company does not associate with businesses that are involved in the financing of terrorism, tax crimes or money laundering.
Businesses across every industry need to be aware of and in compliance with the most recent KYB changes. In fact, KYB practices are essential for businesses looking for fraud prevention in client onboarding and business verification. If your company is new to the KYB discussion, EVS has created a corporate data verification solution to help you protect your company. While online business opens your company to increased financial risk, EVS is prepared with comprehensive business verification solutions to keep your brand in line with KYB policies, protect from bad actors, prevent fraud, and save your business thousands or even millions of dollars.
EVS can help you Know Your Business with IdentiFlo Corporate.
IdentiFlo Corporate, EVS’s corporate data verification solution, is ideal for companies to ensure their business-to-business interactions. IdentiFlo Corporate offers automated features like high-risk corporate address identification, mixed-use property verification, corporate OFAC (Office of Foreign Asset Control) Watch List screening and more.
If your company needs the added layer of KYB to increase its fraud prevention and decrease financial risk, reach out to EVS today to see how our solutions can integrate with your existing framework.