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Business Verification: Navigating the Path to Ensure Company Legitimacy

14 December, 2023

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As technology continues to transform, the business world is also rapidly evolving. However, it is now more complex for enterprises to ensure transparency and legitimacy in functional and structural procedures. Fraudulent activities, security breaches, and financial scams are some of the company’s primary challenges. According to a report published by Juniper Research, losses due to online payment fraud are about to hit $343 Billion in the next 5 years. Therefore, business verification is more crucial than ever to combat the risk of financial losses and illicit monetary activities, including money laundering.

Furthermore, according to a report issued by ACFE (Association of Certified Fraud Examiners), businesses lose 5% of their revenue annually due to scams. That is where business verification, also called Know Your Business (KYB), comes into play and helps companies prevent potential losses. This article aims to examine the impulses that drive the development of fraudulent business identities and to assist you in determining whether or not a particular company is legitimate.

Reasons for emergence of fake companies

Reasons for the Emergence of Fake Companies

One of the primary motivations behind creating fake businesses is to gain illicit financial objectives. However, here are some main reasons why imposters make counterfeit enterprises:

  • Money Laundering

Money laundering aims to make illegal gains look like they were earned legally. Illicit money is sent through fake organizations, usually a fake business that lies about its sales or income to look natural. This is often done with shell companies, which only live on paper.

  • Impersonation

Individuals or businesses pretend to be trustworthy representatives of actual companies or brands to get loans or trick businesses. Using the names of actual companies, scammers try to boost credit scores or trick people who aren’t paying attention.

  • Shell Companies

Shell companies are a beneficial tool for illicit financial activities such as corruption, terrorism financing, and money laundering. These companies are a common way to hide money because they are made up of people or businesses that don’t have tangible assets or operations and usually only exist on paper. Furthermore, imposters often use this method to move money and hide where it came from, making it beneficial for individuals who want to launder money.

  • Bypassing Regulatory Authorities

Another main reason behind the creation of false businesses is to carry out secret working procedures. This allows them to bypass the restrictions implemented by regulatory authorities. Furthermore, such counterfeit enterprises also hide their actual owners’ names so they can commit illicit financial activities without getting caught.

  • Tax Fraud

False businesses try to evade tax-paying procedures by manipulating their tax information on returns. They could change invoices, fabricate costs, or use dishonest means to move income between countries.

  • Taking Advantage of Investors

Counterfeit corporations often use the names of real businesses to get people to invest in them by promising high returns or tricking customers into buying fake goods.

Knowing these reasons helps individuals and companies spot and bypass possible scams.

Benefits of Business Verification

How to Verify A Business?

In today’s digital world, countless new companies exist daily. Nevertheless, ensuring their legitimacy before making business partnerships is essential to prevent financial and other illicit crimes. Discover how business verification is vital to confirm the legitimacy of a company and what are the significant steps behind legit company checks:

A Comprehensive Verification of The Company’s Website

There are always certain suspicious flags when it comes to identifying fake companies. Nevertheless, an initial step to spot those doubtful signs is to verify a business’s website. For instance, when no contact information is given on a company’s website, such as a legitimate contact number. In such cases, there is no appropriate way to contact the enterprise, and the risk of being fake exists. However, a quick and easiest way to verify is to call that company, while connection failure is a complete red flag.

Moreover, companies must also keep in mind that having an email doesn’t define the legitimacy and trustworthiness of a company. Since today’s digital world makes it easier for companies to get a domain and fake emails for counterfeit enterprises within no time, there must be strict regulations. Financial institutions have to follow a standard set of rules regarding business verification. These regulations require companies to gather the following data from potential partners:

  • Detailed information regarding the company’s payment method
  • Reason or purpose of all business transactions
  • Location and nature of the company
  • Knowledge regarding the company partnerships and relevant certificates

Authentication of Business Address

A company’s address verification is another crucial step in checking business legitimacy. During business verification procedures, enterprises can significantly identify cases of address fraud. Criminals usually use fake office addresses for money laundering while hiding their actual addresses from regulatory authorities. 

Hence, their address must be verified from the website before initiating any business relationship with the company. However, a website’s absence of location details is an absolute red flag. Nevertheless, once location details are obtained, your business can verify that through Google Maps. Furthermore, corporations can also gather original documents such as billings or other records to verify the authenticity of companies and ensure fraud prevention.

Verification of The Company Number

The registration number of any business is considered as its identification number. The national registration office issues this specific number to the companies that can be used legally. Nevertheless, legally registered companies enlist the business registration number in their terms and conditions or privacy policy section to prove their legitimacy. 

For instance, the UK’s First Company Law Amendment Directive issues all the registered companies of the UK with a specific registration number. The shareholders and directors of a limited liability corporation are usually kept legally separate from the business itself. If a company’s name, location, or shareholders are changed, the company’s license number will not change.

Check for Inconsistencies in Official Documents

Several grammatical errors exist in the documents of a fake company. Most likely, this isn’t an accident. Poor English proficiency and document verification through Optical Character Recognition technology might indicate that a corporation is fake and create questions about the credibility of a business. Therefore, companies must be wary of entering into any hasty commercial deals with a firm and ensure that the documents of their potential partners are accurate, up-to-date, and complete.

A general lack of professionalism is another red flag indicating a business isn’t legit. Hence, companies must exercise caution if they come across documents that are manipulated and if there are any discrepancies. For example, the organization might be committing total fraud if it mentions one service in papers but then contradicts itself by providing inaccurate information about another service. To be extra cautious during business verification, companies can use databases to verify the accuracy of submitted documents.

Verify the Privacy Policy of the Firm

A privacy policy often verifies the legitimacy of a company’s registered address and name. Both the Terms of Service and the Terms and Conditions websites of legitimate businesses are extensive. Hence, companies must be wary of any terminology that seems fishy in the company’s rules before they do business with them.

Any respectable business worth will include an About page where users or verifiers can learn more about the company’s principles, goals, and history. For this reason, it is prudent to peruse the history and general content of the organization as a whole during business verification. It should raise serious warning flags if the firm has no track record.

Analysis of Track Record and Business Reputation

Investigating track records and company reputation online during business verification is an excellent approach to determining whether a business is accurate. Testimonials, partner feedback, and other sources may provide more reliable information about the firm than the company’s website. However, a business with a longer and positive track record may be more trustworthy than a startup.

Naturally, businesses can’t take a company’s authenticity at face value if it has a few bad reviews. Nevertheless, if a business wants to know what the firm is up to, it must look into it from all angles. Reputable companies that are well-presented online often leave comments on sites like Yelp.

On their websites, many companies give references. Companies may verify the validity of the favourable review during business verification by calling the reference in question if that’s the case. In addition, business officials may also contact the other firm listed as a reference if the company provides one. This allows businesses to investigate their history quickly while researching the company’s associates and getting feedback.

Investigate the Accepted Methods of Payment

The most important thing to consider when deciding if a firm is legitimate is how it handles payments, whether a corporation or a client. Companies that ask for your bank details to make large transactions should be avoided.

Nevertheless, original businesses offer money-back guarantees to their potential partners. Credit cards and other online payment systems like PayPal are often considered secure, and the company’s apparent suspicion is highlighted if they refuse to accept any of them.

Analysis of Documents and Official Sources

During business verification, using specialized databases, government agencies, and internet resources, one may verify the existence of a corporation. If businesses do that, it will be easy to assess the company’s legitimacy. A few instances are as follows:

  • The Financial Conduct Authority (FCA)

In the United Kingdom, the Financial Conduct Authority is required to approve almost all financial service activity. Companies claiming to provide financial-related services will show up on the register unless authorized by the Financial Conduct Authority (FCA), which is a warning sign.

  • Companies House

There is no other database like this one, which contains every limited liability partnership and limited company in the United Kingdom. Data stored in the database includes details such as a company’s incorporation date, location, status, and prior names, eventually helping the business verification process. Moreover, it details the educational and professional backgrounds of directors as well as their appointment records.

  • The United States Department of Commerce

Its 13 divisions aim to hasten the expansion of high-quality employment opportunities nationwide. It also generates unique due diligence reports for businesses, which include crucial details like the company’s name, location, kind, sales area, staff count, and year of establishment, among other factors.

  • Better Business Bureau (BBB)

The Better Business Bureau is a great resource for researching American and Canadian firms during business verification. That’s the mission of this private nonprofit group, which has been around since 1912. With BBB, enterprises may look up a company’s location or the areas where it does business while having statistics on customer complaints.

Where The KYB Comes In

Searching from multiple resources and verifying from different channels online isn’t always a piece of cake for businesses. Manually reviewing all of the sources might be a lot of work. In addition, conducting complex, exhaustive business research increases the chance of making errors and forgetting critical details. Well, that’s where The KYB’s automated business verification comes in.

Our real-time business verification solutions with access to 250+ accurate data resources help companies comply with standard regulations. Furthermore, our corporate screening solutions allow your business to quickly and easily examine the legitimacy of any organization. Utilize our global and real-time data resources to find information on any business, including their address, status, location, facts about their directors and shareholders, Ultimate Beneficial Ownership (UBOs), and much more.

Talk to our experts today!

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