Business Impersonation | The Hidden Risk and How to Protect Your Business

Do you know that business impersonations are the most reported type of financial fraud? According to the Federal Trade Commission(FTC), consumers lost over $12.5 billion to fraud in 2024. Now, the question is, what exactly is a business impersonation scam, and how can legal entities prevent them?

What if your company is ready to finalize a deal with an established software house, only to realize that what seemed like a trusted company was an impostor?  An impostor who is pretending to be a legal company just to invade your business. 

Business impersonation is not limited to cyber attacks but an all-out assault on the business’s trust, reputation, and bottom line. 

From CEO fraud, account takeovers, to supply chain and vendor impersonations, fraudsters use multiple tactics to exploit companies’ vulnerabilities. 

Business Impersonation Scam | The Story of an Insurance Firm Scammed by a Software House

Let’s think of a scenario – a prominent investment firm, ‘GrowFund’, is looking to partner with a reliable software house to offer a new financial product and offers customized solutions to its high-net-worth clients. 

For this purpose, it decides to onboard a famous software house, ‘Tecnosoft’, known for its modern, unique, and customized B2B solutions. Once both businesses reach an agreement, the contract is finalized and signed. 

However, amidst everything, what ‘GrowFund’ does not realize is that ‘Tecnosoft’ is not actually a legitimate company. It is impersonating a famous software house, ‘Technosoft’.

Business Impersonation | When Tecnosoft Wears Technosoft’s Logo 

Business impersonation fraud is a type of scam where an impostor pretends to be a legitimate business to conduct illegal activities and financial fraud, just like “Tecnosoft”, in this particular story, which is not a legitimate software house. Instead, it’s a carefully crafted impersonation of ‘Technosoft’, a trusted and well-known company in the Tech sector. 

Why Would a Software House ‘Tecnosoft’ Want to Do Business with ‘GrowFund’?

Business impersonation attacks are often driven by financial incentives, with fraudsters aiming to exploit the market reputation and credibility of the associated reputable business. Some of the primary reasons an impersonated software house wants to target an investment firm  can be:

1. Illegitimate Financial Gains 

By impersonating a well-known company, ‘Tecnosoft’ will gain access to the funds that ‘GrowFund’ is ready to invest in software solutions. This will result in significant profitability, both in terms of immediate payment services and potential long-term partnerships.

2. Exploitation of Trust 

Impersonating well-known companies helps such fraudulent companies to get projects and deals on their names. The ultimate goal of ‘Tecnosoft’ is to exploit trust; otherwise, it won’t be able to secure the projects and deals on its own.

3. Commiting Fraud and Reputational Leverage 

One reason ‘Tecnosoft’ wants to do business with ‘GrowFund’ is to gain credibility, build a business portfolio with its association, and attract more unsuspecting clients/investors. 

Moreover, impersonating a well-reputed software house may help ‘Tecnosoft’ funnel illicit funds and make it appear legitimate.

How will the ‘GrowFund’ Suffer?

If ‘GrowFund’ unknowingly enters into a business deal with an impersonated company, they expose themselves to various risks. These threats include financial, operational, and reputational damage. Here’s how:

• Financial Loss

The immediate risk is the financial loss because ‘Tecnosoft’ is an impersonated software house and not an actual software development company. ‘GrowFund’ may end up paying for solutions that are non-existing. This will result in wasted funds and investment loss.

• Loss of Intellectual Property 

A business working in the financial space likely handles sensitive and proprietary data. If they work with a fraudulent company, the risk of exposing data to unauthorized parties increases. This may lead to legal repercussions for the business.

• Legal Issues 

The consequences of working with a non-compliant business using an impersonation scam include heavy fines, legal battles, and increased scrutiny from regulatory bodies. ‘GrowFund’ will get exposed to a compliance violation in the sector like finance, where data security and privacy regulations are enforced strictly.  

• Reputational Damage 

When ‘GrowFund’ falls victim to a business impersonation scam, its reputation in the business industry suffers irreparable damage. Investors will hesitate to trust the firm even when it was not at fault. 

• Risk of AML Non-Compliance

This risk level is considered slightly high because the entity associated with the software house can be involved in money laundering or may be listed on the international sanctions list. Doing business with high-risk entities may lead firms to non-compliance with AML laws or even sanction regimes.  

However, with all the worst-case scenarios, legal entities like ‘GrowFund’ can still protect themselves from getting scammed by such companies. 

How to Protect Your Business Against the Business Impersonation Scam

One of the most effective ways to protect your firm against business impersonation fraud is through strong Know Your Business (KYB) checks and subsequent AML compliance, including sanctions list checks, watchlist monitoring, and risk mitigation strategies. 

Let’s discover the features that can help ‘GrowFund’ prevent falling into the trap of ‘Tecnosoft’.

• Real Time Business Verification

KYB check offers real-time access to data from official business registries. It allows ‘GrowFund’ to verify if ‘Tecnosoft’ is legally registered, operating, and recognized by the official state authorities. It will make it hard for the fraudster to impersonate legal businesses. 

• Company Ownership and Structure Check 

Company director and ownership checks assist the investment firm in confirming the ownership structure of legal entities and uncover associated shell companies. It also exposes directors who are sanctioned or listed against any warning list or any adverse media list.

How The KYB helps in Preventing Business Impersonation Scams

Moreover, The KYB provides proper details on the ownership structure available in public records to unmask an ambiguous pattern of ownership structures used in impersonation schemes.

• AML Compliance, Warning, and Regulatory Enforcements Screening 

In AML compliance checks, screening against warnings and regulatory enforcement will help the investment firm assess its potential business’s financial, reputational, and regulatory behaviour.  Warning and regulatory enforcement screens entities against potential convictions, court proceedings, or checks if there are any court rulings related to certain crimes.

Moreover, adverse media screening helps determine if directors and related entities associated with the company are subject to any predicate offense for money laundering, any crimes, or bad news about them. 

• Sanctions List and Watchlist Check 

The sanction list contains names of entities, companies, and related businesses subjected to financial and trade restrictions, which are often due to their involvement in illegal activities. 

By checking ‘Tecnosoft’ against the administrative sanction list, the investement firm can quickly identify whether the software house has any history of fraudulent or illegal activities, etc. 

Further, in this case, watchlist monitoring assists with identifying entities involved in high-risk activities or under investigation by law enforcement.

Protect Your Business from Getting Scammed with Strong Business Verification Checks

The story of Tecnosoft’s impersonation of ‘Technosoft’ highlights the danger that companies face for doing business without doing the proper due diligence of a partner or client business. For firms like insurance companies and other sectors dealing in finance, supply chain, and trade, it is crucial to implement business and UBO verification.

The KYB protects business entities by offering them authentic business verification and UBO data from official business registries. Not only this, The KYB additional AML Compliance suite assists businesses in conducting proper checks on entities against the sanction list, watchlist, PEP list, and warning and regulatory enforcements to help comply with AML, supply chain due diligence, and sanctions laws.

By opting for The KYB’s business verification solution, companies can ensure that they are working with legitimate, legally registered, and trustworthy partners while protecting their business assets.

Frequently Asked Questions

How to Prevent Business Impersonation Attack?

Verify every partner by checking official registration details, conducting proper due diligence, and confirming that they are not registered against the sanction list, watchlist, or warning list before doing business.

What is Business Impersonation in Simple Words?

Business impersonation is when entities pretend to be a legitimate company to trick other businesses or clients. They mimic a company’s name, logo, website, or invoices to steal money, data, or gain unauthorized access.