Navigating The Complexity of Ownership From The Lens of Sanction By Extension

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Lapses in UBO Identification, Sanctions Compliance, and Corporate data

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Mark Bain


Louie Vargas


Michael Harris


Unlocking the Power of Know Your Business – Enhancing Trust and Mitigating Risk

13 July, 2023

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Know Your Business refers to a procedure that identifies a company’s legal status and confirms its compliance with regulations such as anti-money laundering and anti-terrorist financing. An organisation under regulation, such as a bank or insurance company, performs KYB to protect its interests and determine whether the organisation is conducting business with a legal entity or a shell company. Furthermore, this process enhances trust, mitigates risk, maintains security and ensures transparency, and builds the business’s credibility.

Regarding corporate collaboration, Know Your Business KYB is the most important tool for securing business interests and ensuring compliance with anti-money laundering regulations. The business should ensure the authenticity and reliability of the client before developing a partnership. Several AML standards, including the Know Your Business criteria, provide a reliable means of verifying a partner organisation’s legitimacy. 

Why is Know Your Business KYB a Must-Have for the Companies?

It is important for organisations to have a clear understanding of the business model of the company they are working with in order to ensure authenticity and protect against corrupt or fraudulent business practices. Moreover, it prevents terrorist financing and money laundering activities associated with financial crimes. Additionally, KYB compliance procedures include a mechanism to establish ultimate beneficial ownership (UBO). Establishing Ultimate Beneficial Owner (UBO) makes it possible to determine which parties directly benefit from the business’s profits. 

Putting Know Your Business into place is essential to preventing criminals from disguising illicit funds as legitimate income. All organisations should follow KYB process in order to protect their brand as well as reputation, reduce profits, and avoid legal repercussions.

What is the KYB Process?

An essential part of KYB is the verification of a business’s legitimacy and identity through various methods. In this regard, it is necessary to verify documents related to the establishment of the business, the ultimate beneficial owners (UBOs), and the nature of the enterprise. Additionally, due diligence needs to be conducted on the reputation and risks associated with the business. By identifying and mitigating potential risks associated with their customers, Know Your Business services protects businesses before issues arise.

Know Your Business KYB Regulation

Know Your Business process is often considered to be an extension of KYC. This is due to the fact that KYB is a relatively new regulation. Despite KYC procedures being in place for decades, businesses have not been subject to the same screening, allowing fraudsters to take advantage of them.

As a result of the 4th AML Directive passed in 2017, European regulators were able to correct this legal blind spot. KYB rules were added to Customer Due Diligence Requirements for banking institutions by the US Financial Crimes Enforcement Network FinCEN a year ago.

Is KYB for All Organisations?

Know Your Business is not just important for banks. These requirements apply to the following individuals, organisations, and businesses based on the 5th AML directive:

  • Financial Institutions
  • Loan Providers
  • Investment Banking
  • Asset Managers
  • Accountants 
  • Tax Advisors
  • Cryptocurrency
  • Brokers
  • Real estate 
  • Gambling 

Unregulated industries may also conduct Know Your Business verification, although the law does not require this. A company’s reputation can be safeguarded, and regulatory checks on business partners may protect assets.

Learn more about The KYB Crypto.

Complying with Know Your Business Rules

Globally, Know Your Business requirements generally mandate that regulated businesses assess the level of risk associated with their business relationships. Due to these reasons, companies should develop an appropriate anti-money laundering strategy that includes the following steps:


A business due diligence process differs from customer due diligence in that it identifies the company’s ultimate beneficial owner (UBO) rather than verifying the customer’s identity. An evaluation of the risk of a business is possible by determining its UBO. Business relationships or monitoring require enhanced due diligence if UBO poses a higher level of risk.

Screening for PEP

A regulated organisation should screen business relationships with politically exposed persons (PEPs). The potential for political corruption poses a higher risk to businesses with a positive PEP status.

Screening Sanctions

The restrictions imposed by another country on economic flows should be screened and adhered to by a country. An organisation should conduct checks on its employees as well as its company. 

Adverse Media Screening

By monitoring adverse news articles published about a business, it may be possible to assess its reputation. A frequent update is provided by the ongoing motoring whenever a business’ reputation is adversely affected by media coverage. 

Transactions Monitoring 

Obtaining valuable information about a business’s risk status can be obtained by analysing its transaction activity. If large amounts of transactions are made to countries with high levels of financial risk, this may indicate the possibility of money laundering. 

KYB’s Benefits

Businesses can benefit greatly from implementing KYB processes. Among them are:

Regulation Compliance

Through KYB solutions, companies can determine the potential risks associated with transactions and business relationships so they are compliant with AML/CFT regulations.

Mitigate Risks

As a result of Know Your Business, fraud risks associated with business relationships and transactions are mitigated.

Reputation Protection

It is KYB’s responsibility to protect businesses’ reputations by ensuring they are dealing with legitimate organisations.

Financial Stability

Keeping businesses financially stable is made possible by KYB’s protection against fraudulent transactions.

Enhanced Customer Service

Know Your Business assists businesses in improving the customer experience by ensuring that fraudulent activities do not compromise the relationship between the business and the customer.

Digitalization of KYB

It is necessary to verify business entities with a significant amount of data, which can be time-consuming if done manually. Human error is significantly increased in this process, as well as the lengthening of the process. As a result, there are quite a few KYB solutions that are automated. By automating onboarding processes, human employees can avoid the lengthy onboarding process using digital tools.

The use of public records and private databases can be used in specific solutions, such as electronic identity verification (or eIDV). It may be necessary to cross-reference this data with the company’s employee list to identify any inconsistencies.

In the future, digital tools and legal verification procedures will likely continue to be used in conjunction. The Know Your Business provides businesses with updated technologies to ensure compliance with current regulations and reduce the risk of fraud. Using smart tools makes it possible to delegate heavy lifting to them, save time, and increase productivity.

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