Know Your Business Mitigating the Risk of Money Laundering in B2B

There is no doubt that Know Your Customer due diligence is becoming a norm for businesses. We can say that B2C is safe but there is still a question on B2B communication. The identification and verification of a partner business are more important than customer verification. According to a report on Business Fraud Prevention, businesses face a 5% loss because of business fraud. These numbers raise the need for Know Your Business verification. It is the moral and legal responsibility of businesses to check whether their channels are used for money laundering or not.

Know Your Business (KYB)

It refers to the verification and identification of businesses against money laundering, terror financing, and other criminal activities. No business in the world can survive solely, it always needs other businesses’ assistance. Like cellular phones, e-commerce websites need to sell their phones globally through the internet. Also, they need some shipment company to deliver them to the customer’s address. They need to develop laws to check the legitimacy of the business they are dealing with.

Normally, criminals open-shell businesses to launder money. It becomes easy for money launderers to convert black money into white by a front company. They mix legal money with illegal money. When the black and white money is mixed, it becomes difficult for law enforcement agencies to interrogate the original source. The concept can be understood by having a context of the above example. A shipping company can manipulate the number of shipments, this type of money laundering is known as Ghost shipments. Like nothing is delivered but the amount has been paid or the amount has been paid but nothing is paid. Through ghost shipments, the exact amount of black money is a tough task to investigate.

Know Your Business checks

The checks that prevent the business from being used for money laundering or terror financing are known as Know Business Checks. It detects suspicious transactions and the link with the ultimate beneficial owner. Some of the KYB checks are listed below:

Business Search

This includes the background history of the business, its founders, and executives. The name of its key people is screened against the Politically Exposed Persons (PEPs) list. The source of capital investment, the purpose of business, the target market, and profit percentage are verified in this process.

Business Filings

The financial statements of the business are checked in this step. Financial statements include annual reports, shareholders list, and register reports. The analysis of these filling helps in calculating the exact amount of profit of the business, thus mitigating the risk of involvement of illicit money in it.

Business Statements

This includes the information of the organizational structure of the business like change in the top management and other important stakeholders. The change in the high-level management can also indicate the involvement of some PEP in the managerial structure. A person that has previously been involved in some money laundering-related activity if joins business management, is a potential risk of financial crimes.

Business Network

The laws of the country in which the company is registered are checked in this stage. If the company is following the rules of that state and verified the connection of the business, its parent, and sister companies, what amount of transaction ins and transactions outs.

Benefits of Know Your Business

Anti Money Laundering Compliance

There is no question about adopting the Know Your Business checks for secure Business-to-Business communication. It also helps in complying with monitoring authorities’ directives. International watchdogs like FATF, EU, FinCEN, and IMF regularly issue AML directives for businesses to counter the chances of financial crimes through their channels. Legitimate businesses can be blacklisted or penalized if they give any direct or indirect link with any UOB or criminal firm.

Fraud Prevention

Financial institutions like insurance corporations, banks, and currency exchanges are the primary target of scams and frauds. Scammers are always in search of more sophisticated ways to commit scams. By having KYB checks a business builds a secure wall against all types of criminal activities.

The latest gadgets and the internet has eased the process of  Know Your Business. There is no manual intrusion in it, all of the verification is done through software. The PEP screening delivers results in just seconds. The AML compliance does not take days for verifying a business. KYB verification software uses Artificial Intelligence and Machine Learning algorithms to screen business documents. Businesses can have reliable and secure B2V communication through KYB.