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KYB for Global Operations: How to Create Cross-Border Business Verification?

23 August, 2023

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Businesses must verify their businesses as part of AML measures. Know Your Business, commonly called KYB, is used for this purpose. Businesses can use KYB techniques to create robust onboarding policies for customers, partners, investors, and suppliers.

Policies such as these assist in preventing suspicious transactions and account activity. The issue of compliance is not only pertinent to corporations. Still, it is becoming increasingly problematic for SMBs and fast-growing startups that may need a dedicated compliance department. Consequently, organizations and companies of all types need to determine if they are working with a legitimate company or if it is merely a facade.

The KYB checks provide compliance with regulatory requirements by verifying what a company is, how it is legitimate, what it has done, and where it stands. The objective is to help them create a more trustworthy environment free from money laundering.

What is the Purpose of Business Verification?

Due diligence in the B2B arena is crucial to the transaction’s success. Businesses should confirm the legitimacy of companies and their personnel before doing business with them.

When you do business with an illegitimate or bogus company, the consequences can be dire, and you may even find yourself in legal trouble. Moreover, you need to think more carefully about a sketchy business deal to save time, money, and, most importantly, your reputation.

The KYB process thoroughly investigates a company’s leadership and operations. Does the business, for example, face a lawsuit? Does it appear on any financial or regulatory watchlists? Has the company complied with all applicable laws?

According to Experian, It is estimated that B2B fraud contributes to more than $50 million in losses for American businesses per year. When working with a bad actor, your business may suffer from invoice fraud or data compromise.

Your reputation may suffer due to the problem, even if you come out financially sound. In the business world, reputation plays a significant role in developing relationships.

The ease with which businesses can appear legitimate surprises those who believe a quick search on Google or a visit to their Facebook page can provide that information. KYB verifies information that is not only publicly accessible but also extends beyond basic information about a company.

Implementing a Business Verification Process

Local anti-money laundering regulations should assess an organization’s anti-money laundering (AML) compliance. While there are differences between countries, the general rule of thumb is that it is better to validate more than less.

A KYB process involves verifying that a business exists, that it operates legally, that all people and entities involved in the transaction are clear regarding sanctions and watchlists, and that all due diligence has been completed to gain a comprehensive understanding of the organization.

The process is designed to determine whether there are any skeletons in the company’s or its shareholders’ closet. Additionally, you should verify who you are directly dealing with, such as a customer liaison. This applies to all, whether you are a small business or a contractor.

Expert assistance is essential during this crucial process. The KYB makes verifying a business incredibly easy. Businesses can be verified immediately. Typically, The KYB business verification solution helps identify the following:

Challenges of Cross-Border Business Verification

Businesses operating in several countries, or working with companies in several countries, face certain challenges not encountered by businesses operating in one country. Some of these challenges are as follows:

Variations in KYB Regulations and Laws 

The law governing KYB varies according to country and region, as do the laws governing AML and KYC requirements.

A business may be required to carry out certain types of verifications or collect certain types of information by certain countries but not others. It becomes even more complex if you operate in more than one jurisdiction. Due to these country-by-country differences, you may feel tempted to apply the most stringent KYB requirements to all users simply; however, this may introduce unnecessary friction and decrease conversion rates.

The first step towards expanding into a new market is to understand the KYB requirements of that market. You can then incorporate these requirements into your KYB and onboarding processes. It takes time, effort, resources, and financial resources to deal with this additional complexity. As a result, regulatory action is also more likely to be taken if you make an error.

Data Availability Variations

KYB involves verifying the identities of each of the company’s ultimate beneficial owners and verifying the names of the beneficial owners. There are several ways in which companies can perform this verification. There is a common practice of verifying customer information by querying an authoritative or issuing database.

Nevertheless, this method has a significant caveat: It is only effective if the database or registry exists and can be queried. An authoritative database in one country does not necessarily mean it will be similarly authoritative in another. Despite this, not all countries have a UBO registry. Moreover, a UBO registry only guarantees that some of the information you require will be contained therein.

Integrating and querying an appropriate data source is only sometimes straightforward, even when one does exist. For example, a company operating in 10 different countries might find itself in a challenging position of integrating with 10 other UBO registries – an additional administrative challenge and cost.

Read more: Current State of Business Verification in Canada

For further information, get in touch with The KYB team.

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