Business bonds are essential for growth, but they are always vulnerable to financial risks. The partner company may be involved in money laundering, terrorist financing, corruption and other suspicious activities. Onboarding the high-risk profile may cause sanctions and penalties. These legal consequences directly hit the financial status of the company and its reputation. For this reason, rigorous business verification is required while onboarding the companies. In the verification process, the detailed investigation of the companies helps to understand their legal status and identify potential risks. In this read, let’s explore the complete process of business verification and its importance for safe onboarding.
Know Your Business Verification
Business verification involves a thorough examination of a company to evaluate its legal standing and confirm the individuals associated with it. The financial performance of the business and the people behind it is evaluated to ensure financial transparency. The industry-specific business information is collected to verify the business identity, type, nature, and intended purpose. It is necessary for businesses to conduct anti-money laundering AML checks over the partner company to assess the risk level. The AML checks over the company and its beneficial owners to detect the red flags.
Know Your Business Solutions
The complete process of business verification comprises data collecting, documentation, ultimate beneficial owner verification, conducting AML checks, and enhanced due diligence. Let’s explore the KYB Know Your Business process here.
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Data Collection
The first and foremost step of business verification is to collect the company information. It includes the name, legal type, address, registration number, registration date, tax ID and other relevant data. In each country or state, there is usually a parent registry which maintains the record of registered business in that region. Once the business collects the data from the counterparty, all this data must be screened against the public databases. The government’s public registries, legal bodies, and other relevant authorities must be utilized to validate the collected data.
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Document Collection and Screening
The business documents are necessary to collect for the verification of legal status and financial performance. The articles of incorporation, tax records, bank statements, income statements, and other relevant documents are collected. The public registries maintain the company’s documents, so screening documents against the databases of registered employees is crucial. This helps to validate the document’s authenticity and detect the red flags.
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UBO Verification
In Know Your Business, the verification of the business people is as important as the business. The data and documents of the UBOs are collected to analyze their legitimacy and financial performance. The name, address, contact number, copy of passport ID and driving license are collected. All the collected information must be screened against the region’s public databases. The parent registry in most of the countries does not maintain the ultimate beneficial owners registers. However, the parent registry, which has UBO information, keeps the data of all UBOs’ designations, the number of shares, and the capital in the business.
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AML Checks
The business must conduct AML checks on the business and all the UBOs in the shareholding chain. If any shareholder in the business is involved in money laundering, it is a potential risk for partner companies. AML checks are necessary to investigate whether the business and UBOs comply with regulations. The background checks are applied to filter out the sanctioned companies and shareholders. If the business onboard the sanctioned entity, it may cause legal consequences.
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Enhanced Due Diligence
The enhanced due diligence involves the constant monitoring of the business to stay vigilant about high-risk profiles. It helps businesses to stay alert about the financial activities of the partner companies. The ways of illicit funding are detected through periodic reviews and reporting. EDD helps to build healthy financial relations for a long term with minimal risks and threats.
Final Words
Third-party due diligence requires the investigation to determine the legal compliance and financial standing of those involved. A similar approach is used on the data regarding the business and, more so, the business person to filter and check against relevant databases. Business regulations for each company differed in relation to the country of location. The business world must adhere to the strict third-party due diligence policy while onboarding. Business screening services help to validate its credibility and warn against the risks. Also, monitoring the business partners’ financial performance is something that needs to be done on a regular basis. Hence, business verification is crucial to perfect financial relations while ensuring that different business entities are within the law.
