Know Your Business – Checking the Legitimacy of Corporate Entities

Know Your Business – Checking the Legitimacy of Corporate Entities

In the corporate landscape, businesses & Corporate Entities need to stay more vigilant while interacting with others.  At the simplest, businesses have to communicate with the customers only. They first take their data and provide them services accordingly. KYC (Know Your Customer) secures businesses from illegitimate customers and false data.

Know Your Business

The customer side may have been safeguarded completely, but what for the B2B side. Today, businesses have other businesses as their customers or partners. To protect corporate entities from the business end, KYB is used which is also known as Know Your Business.  KYB is used to spot out businesses that are involved in money laundering and some other illegal work.

The KYB is performed by first taking their data and then verifying it. The logic behind implementing know your business checks is that some criminals might have built an entire company to process their illegal activities.

Business Verification

Money launderers develop s company as a front business to wash their illegal funds. Having an entire organization to launder money gives better results than using money mules. They carry only small amounts of funds, take more time, and have a higher vulnerability. Additionally, after laundering some amount of money through money mules, the UBO (Ultimate Beneficial Owner) has to find new ones. Because they can be used frequently, the authorities can find patterns in the transactions and the money mule can get caught. Know your business checks that the company exist, and also its examines its  functioning and financial details

Criminals have found front businesses to launder their money

Front Businesses

The company that is used as a cover for the original one is known as the front business. Let’s have an example to understand the concept more easily.

A drug dealer has a network in the whole USA and the profit is in millions. This cash can’t be laundered easily because of the high amount. But if he uses front business to launder money, the process gets easier. He has developed a restaurant as a front business. The earnings of drug selling will be mixed with the restaurant profits.

This helps to doge the business verification system. The reason is, restaurant bills are in very small amounts and paid by different customers. It gets a bit difficult for authorities to find the money trail because the funds are mixed in a very complicated way. He might have doubled the bills – the other half is the illegal money. In this way, he can continuously launder his money without any suspicion.

There is another form of illegal business, there is another

Shell Corporate Entities

This is an example of a fraud business, which is developed for scamming customers or businesses. After scamming, they disappear overnight. They do not have a proper setup or address, instead only exist online. They have attractive websites and social media accounts offering B2B services like office cleaning. After a business has paid the advance amount, the business vanishes.

How Corporate Entities are Verified?

Know your business process by examining documents.

Businesses are obliged to comply with AML (Anti-money Laundering) regulations. Failure can lead to heavy fines and reputational damages. Financial service providers are especially under the supervision of the global watch dogs which overlook their AML program and compliance.

The business verification is performed by checking the internal documents, financial details, and government-issued licenses. The higher management and UBOs under CDD (Customer Due Diligence) and EDD (Enhanced Due Diligence) according to the risk level. AML screening is performed on them, their names are screened against the sanction list.

Also, the internal documents which have the information of the organizational hierarchy and employees are analyzed. In know your business, it is affirmed that the business is permitted by all the state departments.

In the end, the financial details are examined. It is checked that the business is getting anonymous profit shares.

Wrapping it Up

Businesses can comply with AML compliance by having know your Corporate Entities services. They can build a strong wall against fraud and money laundering.

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