The world has seen many disasters in recent years, Covid-19 being the most important one. Likewise, the corporate world has been hit with multiple scams and frauds, for instance, money laundering has disrupted the financial sector.
The illegal transfer and concealing of funds are called money laundering. This is done to legitimize illegal proceedings by injecting them into the financial system. Well, not only the financial sector but all other industries are victims of illegal funds transfer, for instance, restaurants, car washes, casinos, and jewelry shops.
The KYC and AML/CFT compliance may look to verify and screen only individuals, but in fact, this also keeps an eye on corporate entities like companies and organizations through the Know Your Business process. At this time, when identity frauds and financial scams have poisoned the whole world, no one can be trusted, either a customer or a business.
Know Your Business – Is there any need when you are using KYC
Everyone in the corporate world is well-known for the term KYC (Know Your Customer). To deter frauds from the customer side, this service is used where businesses verify their customers by checking their government-issued IDs. The process is carried out remotely by the AI-powered software that also guides all the steps of the verification.
Now businesses have secured themselves from the customer-side threats, but the partner and associating businesses can also be fraudulent or bogus. Money is also laundered through:
● Shell Companies
The organizations exist only on papers with no office or business address. They can have attractive websites and social media pages, but no real business activity. These businesses are established for scam purposes where normal people are mostly targeted. For example, fake recruitment agencies take money from the job aspirants and in return give them nothing. Shell companies are identified by the know your business checks, where their financial statements are examined.
● Front Businesses
The companies have proper working and structure, but the intention is to mix illegal funds with it. The word front means a cover for the illegal funds. Let’s have an example of a restaurant that is used as a front business for the drug racket. The bills are very small in amount, thus it is very easy to blend other funds in it. When the authorities look into the financial documents, it will be very hard for them to point to the exact amount of illegal money. The money launderer can just double every bill by adding illicit money to it.
Know Your Business Process – How corporate KYC is performed?
The process is similar to KYC, the companies are verified by checking their official documents both internal and external. The data is extracted through OCR and then validated. All the businesses have to take government permissions or approvals and then are given a number that can be said as a business face identification number. The process is performed by AI-powered software that makes the verification process error-free and robust.
Here is the process of business verification;
The company’s history, background, name, type, trademark, market status, and identification number is checked in this step. Not only this but the financial details of the company’s bank accounts are also asked by the verification service.
The shareholder’s list, downloadable annual or quarterly reports, and easily available financial statements are examined here.
The organizational hierarchy, like information about the top management and the data key people of the company, is scrutinized by the KYB software. The change in the stakeholders or the people who control the company tells the working of the business. The UBOs are verified through CDD (Customer Due Diligence) or EDD (Enhanced Due Diligence) if a high-risk entity is involved in the management.
The connection of a business with others, its sister, child or partner companies comes in the business network. The origin of the businesses is also very important because if it belongs to a high-risk country, then there are comparatively high chances of its involvement in money laundering.
In a Nutshell
Businesses can stay compliant with the regulations and save themselves from scams and unintentional involvement in money laundering though know your business. The services can be availed from KYC and AML solution provider.