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KYB Compliance – Detecting and Preventing Fraud in Cross-Border Payments

22 November, 2023

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In today’s fast-paced world, cross-border transactions are a part of the global economy as the whole business landscape is interconnected. It is an essential part of businesses operating through digital channels, allowing them to transfer money to anyone across the globe. However, with the increasing reliance on cross-border payments, fraudsters find it easy to breach online channels and compromise these payments for illicit means such as money laundering and terrorist financing. 

KYB Compliance is a solid defence in response to increasing financial cyber-attacks. According to the records, over $41 billion was lost in 2022 to online payment fraud. To combat this major challenge, firms need to have proper KYB verification checks in place for cross-border payments. 

This article will discuss the importance of KYB compliance and explain the different types of cross-border payment risks that hinder business growth. 

What is Cross-Border Payment Fraud?

Cross-border payments are necessary for business expansion and collaboration globally. It is the process of transferring funds through online channels or payment gateways to other entities. Cybercriminals specifically aim for these channels from which the money is being moved. They target vulnerabilities within the payment processing system and exploit them to access the complete transactional data. Once they get the information, fraudsters re-route the online transaction to different beneficiaries or their own illicit accounts. 

One such example is when fraudsters attacked Bangladesh’s bank, stealing $100 million in 2016. In this cyberattack, the bad actors sent fraudulent payments from an already stolen account. Now most businesses and financial firms implement KYB compliance solutions to prevent these disasters. 

The Anatomy Behind It

Hackers use multiple tricks and methods to manipulate digital transactions, businesses need to check for all the tactics explained below to detect and report fraud instantly.

Fake Identities

The top approach fraudsters take is the use of fake profiles or synthetic identities. They also create false documents to present themselves as legitimate in front of banking systems. False paperwork is difficult to detect if the bank does not follow the KYB compliance checks. Attackers sometimes use stolen identities and all the necessary information such as contracts and invoices of the real business owners to trick firms. KYB Compliance also comes in handy in this regard as modern-day solutions scan the documents and look for possible case filings for stolen identities across global databases.

Social Engineering

Social engineering is another top tactic in which fraudsters trick business owners with psychological manipulation, extracting confidential information. Social engineering strategy follows multiple tactics to lure business owners into traps such as phishing, pretexting and fake calls. The main purpose is to get personal data by which they can exploit financial channels and use all the resources for illicit activities, especially money laundering. KYB compliance helps in eliminating phishing and all other tactics as it helps firms automatically verify the real source.

Transaction Misuse

Also referred to as transactional laundering, the misuse of financial accounts is what most bad actors take advantage of. It is when hackers trap people who have access to legitimate merchant accounts. They lure them to process payments from real profiles for illegal activities. Fraudsters use transaction laundering to hide the true nature of the scam, making it hard for authorities to defect and find the real culprit behind the illicit transactions. KYB compliance helps by notifying possible loopholes within business systems as the transaction monitoring solution highlights people with access controls to different accounts. 

Virtual Currency Scams

Another type of scam which is common in the industry is virtual currency fraud. This type involves the use of cryptocurrency to perform illicit cross-border transactions. As these virtual currency transactions are not fully regulated in every region, there are high chances of fraud execution without detection. Virtual currency scams can occur through unregulated crypto exchanges and businesses that do not follow KYB compliance protocols. 

Read more: A Comprehensive Guide to Business Verification in the Crypto Industry

How KYB Compliance Ensures Security

Know Your Business (KYB) is key to verifying businesses worldwide. It plays a crucial role in helping businesses detect cross-border payments fraud. Firms can also follow trading compliance protocols with modern business verification solutions. Here are the top three ways firms can ensure security with KYB compliance.

Multi-layered Checks

KYB Compliance ensures security as it enforces the implementation of multi-layer checks and transaction processing controls to prevent fraudulent activities. With multiple checks, firms can:

  • Authenticate each business interaction before proceeding to money transfers using 2-factor Authentication (2FA). 
  • Detect and prevent suspicious transactions using AI technology, which automatically attaches a risk score with each business interaction. 

Anti-Fraud Controls

Firms can implement anti-fraud controls with complete identity verification of business owners, stakeholders, partners and even new customers. KYB compliance helps ensure that each business interaction is performed with proper verification controls such as:

  • Document verification of business entities using modern technology to detect false papers and forged information.
  • Risk assessment checks come in handy when dealing with new clients asking for large amounts of investments.
  • Avoid shady cross-border payment channels that hackers can use to exploit transactions and misuse them.

Transactional Monitoring

Monitoring transactions in real-time is an integral protocol of KYB compliance and risk assessment. It can help in detecting fraud as the transaction is being monitored throughout the channel from sender to receiver. AI algorithms help significantly in identifying fraud and anomalous transactions by automatically flagging them in case of any compromise within the transactional data. 

Final Words

Ultimately, cross-border payments are the future of the business financial exchange as they simplify transactional processing. However, like every other digital system, there are many risks involved with cross-border payments as well. To overcome them all, businesses need to have KYB compliance rules in place with the latest technologies to safeguard their resources and revenues from fraudsters. 

Talk to our experts to learn more about KYB compliance and how we can help your specific business comply with global regulations with the right use of modern technology that is Artificial Intelligence!

Also read: Role of KYB Verification in Gaming and Gambling – A Comprehensive Guide

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