Mapping Risks And Challenges of KYB in the MENA Region

Financial institutes and companies must verify the business before onboarding to combat money laundering and terrorist financing. The Know Your Business (KYB) checks assist companies in verifying the organizations, trusts, and private corporations while upholding international standards. Moreover, the KYB is also an essential part of the Financial Action Task Force’s (FATF) anti-money laundering and counter-terrorist financing (CTF) obligations. Compliance with these regulations through the KYB supports countries in avoiding the FATF high-risk money laundering list, well known as the “grey list.”

Global Economic Impact of MENA Region

Since 2010, businesses have evolved, and the volume of data has become more accessible. This positively impacts the Middle East and North Africa and assists the oil trading region in expanding its financial and technology industry. According to their population, the World Bank includes 21 countries in the MENA region.

MENA's Global Economic Role

However, the region is working on its technology and tourism to reduce its economic dependency on oil reserves. Nevertheless, this makes the MENA region vulnerable to money launderers and financial crime operators. That is why, on 4th March 2022, FATF added the UAE to the grey list compliance.

Prominence of the KYB MENA Region

The Middle East is a thriving business landscape and global economic region. It is promptly growing in this digital world by moving its dependency on oil to other financial industries. KYB is pivotal in combating MENA’s rising economy from fraudulent activities. It holds significant importance in this specific region due to several factors: 

Regulatory Compliance

International businesses must have to verify the industry before starting a partnership. Companies in the MENA region can not expand without compliance with international standards. New regulations such as the US Corporate Transparency Act (CTA) and FATF 6AMLD, including geopolitical as well as advancement in the financial industry, led to a greater onus on companies to identify beneficial owners of the company before starting to deal with them. For compliance with these and other national or international regulations, KYB MENA plays a vital role. The KYB checks assist companies in complying with various rigid laws from government and law enforcement agencies to grow their business worldwide without hefty penalties. 

Risk Assessment 

Before onboarding any business, the companies must check their financial statements and previous transactions while verifying their ultimate beneficial owners. This ensures companies onboarding businesses with low risk. The risk approach onboarding also gives them an upper hand on the high-risk owners or politically exposed individuals to prevent them from using company services. 

According to the risk assessment, companies take their next step. For example, low-risk clients did not need any due diligence, and medium risk required customer due diligence (CDD) and enhanced due diligence (EDD) for high-risk businesses. 

Reputational Protection 

The company’s reputation is everything in the international market. A wicked reputation can lead an enterprise to revenue loss and a declining client ratio. The business onboarding process significantly impacts the company’s reputation. The complied system protects the firm from penalties and enhances other businesses’ interest in working with them. For the MENA region, where international investors want to grab new opportunities, maintaining the company’s reputation is the key to success. KYB MENA assists companies in beating their competitors and boosts other businesses’ trust in your company. 

Financial Integrity 

As discussed earlier, MENA controls half of the global economy because of its oil and gas resources. Compliance with international regulations is essential for companies in this area to protect the dignity of the global economy. Money laundering and terrorist financing from this region negatively impact worldwide financial integrity. 

Companies can ensure the dignity of the MENA region and global economy by following KYB MENA obligations. business and adequately complying with AML/CFT regulations through adequate KYB checks. This promotes transparency of the corporate structure and financial transactions as well as enhances the security of financial institutions.

Prominent Scams In MENA Region

Challenges of KYB in the MENA Region

In simple words, you can say that KYB onboarding is only business verification through some government official documents. However, it is not as straightforward as it looks. Given below are the various challenges that companies face during KYB compliance in the MENA region: 

Common Names

The MENA region encompasses diverse countries with unique cultural and linguistic heritage. As a result, numerous common names may arise during business verification processes in this region. These names make the KYB verification complex and impossible in some states. During the ultimate beneficial owners (UBOs) screening, it provides inaccurate results. Most of the databases cross-match one name with other informational data. 

Language Barrier 

Over 60 languages are spoken in the MENA region, including Arabic, Hebrew, Greek, Persian, Kurdish, and Turkish. Changing every company’s information from Arabic to English is not easy, which increases the time and cost of ensuring KYB verification of the company. Mistranslated information about the business and its owners causes inaccurate company identification or the representative’s failure to recognize crucial connections between firms, directors, and shareholders. 

Free Zone 

A free zone is an economic area governed by a region or country’s laws or regulatory authorities in that particular state. These are tax evasion zones where nominal or minimal regulations are obliged to grow the country’s economy. There are various free zones in the MENA region, and every zone has its policies. The region’s most prominent free zones are UAE, Qatar, Saudi Arabia, and Kuwait. International investors can open shell companies or start new businesses in these zones without KYB or AML checks. Free zone companies trade services and products, leveraging special tax and foreign ownership laws. In particular, the UAE has 50 free zones within its borders. 

Data in Silos 

Restricting the information and not all data in one database is also a challenge for the companies to verify MENA region businesses before onboarding. Accessing various data from government and third-party databases is essential for adequate KYB verification. The lack of data and multiple databases for cross-checking collected information disrupts gathering accurate company info to comply with AML regulations. This lack of access to comprehensive data makes it difficult for companies to verify MENA region businesses and make informed decisions properly. As a result, companies may be exposed to potential risks such as fraud and money laundering.

Complexity in Regulatory Authorities 

Various departments work for different industries, complicating compliance with the regulations. Like the other regions in the MENA, your business cannot gather all information about the company from one database. There are various checks, such as KYB UAE, Iran, Egypt, etc. Moreover, the free zones also disturb regulatory compliance with their obligations to enhance investors’ interest. This makes it challenging to keep track of all the regulations and ensure that companies adhere to them. Furthermore, the region’s lack of a unified regulatory framework further complicates matters.

Inconsistency in Technology 

Although the MENA region has shown impressive technological advancement recently, loopholes and departments need more essential technology. Innovations are necessary for the data collection and regulatory compliance. Automation is required to store data about the companies and owners. So, the businesses can verify the company’s information from the official databases of law enforcement agencies. The unstructured and manually stored data is error-prone, costly, and time-consuming.

Strategies for KYB MENA Compliance

The KYB is the ultimate business onboarding tool with adequate compliance strategies across 200+ countries. We cover various regulations, including free zone policies. Companies can comply with perpetual KYB UAE and other MENA country’s laws with our compliance audits. Moreover, the KYB is a primary data source provider with 250+ databases along with 301M companies’ information registered worldwide, assisting MENA region companies in partnering with internationally registered businesses. 

Our extensive business verification solutions offer global KYB compliance and help your business avoid hefty fines and prevent financial crimes. Develop a strong business foundation to expand globally without experiencing non-compliance fines with ease using automated KYB checks and stay compliant from anywhere, anytime.

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