In today’s fast-paced business landscape, it’s essential to know who you’re doing business with. This is where KYB (Know Your Business) comes in – a process of identifying and verifying the key information about a corporate client, including information about their ownership. KYB helps businesses to mitigate risks, maintain compliance, and make informed decisions about who they choose to work with.
While KYB may seem like a daunting task, with the right tools and resources, it can be streamlined and simplified.
In this guide, we’ll take a closer look at what KYB is, why it’s important, and how Verify 365 can help professionals carry out KYB checks with ease. Whether you’re a compliance officer, a risk manager, or a regulated professional, this guide will provide you with the knowledge and insights you need to carry out the relevant company checks and make informed decisions about your corporate clients.
Guidance and Law when identifying beneficial ownership
The Financial Action Task Force (FATF)
FATF has recently released new guidance on 10 March 2023 regarding company beneficial ownership and due diligence, which sets out a comprehensive and consistent framework of measures that countries should implement to combat money laundering and terrorist financing. The FATF agreed on tougher global beneficial ownership standards in its Recommendation 24 by requiring countries to ensure that competent authorities have access to adequate, accurate and up-to-date information on the true owners of companies.
In response, the UK Government introduced the Register of Overseas Entities, which is designed to increase transparency around property ownership in the UK. However, this is just one example of the growing importance of identifying beneficial ownership and enhanced due diligence of businesses.
The task force which advises countries also stated that current rules are insufficient and are in the process of formulating more concrete recommendations for greater transparency around beneficial ownership. This usually means it’s just a matter of time until FATF’s guidance becomes legal requirements in various jurisdictions around the globe.
This new guidance has significant implications for law firms and other professionals dealing with international clients and companies some of which will be discussed in this guide.
The Legal Sector Affinity Group (LSAG)
The Legal Sector Affinity Group (LSAG) has provided guidance for legal professionals when dealing with international companies.
According to LSAG, it is essential to identify and verify the name of the company through a collection of proof of registration, which can be obtained from the client or through the relevant register. It is the responsibility of the practice to take reasonable measures to determine and verify the jurisdiction to which the company is subject and understand its internal company rules and laws through documents such as articles of association or other relevant documents.
The organisation should also identify any Ultimate Beneficial Owner (UBO) and take reasonable measures to verify the identity of the beneficial owners and their control and role in the company. This information is critical in determining the beneficial owners’ potential involvement in money laundering, fraud, or any other illegal activities.
LSAG has also emphasised the importance of undertaking enhanced due diligence measures when dealing with high-risk companies. These measures may include a more extensive collection of documentation, additional checks, and increased scrutiny of the company’s internal procedures and controls.
It is essentially a due diligence process like that of KYC (Know Your Customer), but with an emphasis on ensuring the validity of a company rather than verifying an individual’s identity.
European Union’s Sixth Anti Money Laundering Directive (6 AMLD)
According to the European Union’s Sixth Anti Money Laundering Directive (6 AMLD), which places substantial emphasis on the importance of the KYB processes, regulated entities will be held liable for non-compliance with the UBO requirements to a greater extent than before. This means that even if an organisation by accident has done business with somebody who is laundering money, the officers involved could face severe punishment such as a fine or prison. This extension makes it clear that not only the entity, but also the individuals with decision-making power or those acting on the entity’s behalf will be held accountable for any criminal charges. This means that all legal persons and those in positions of control must take action against any criminal activity, or face potential punishment for their failure to do so.
Risks associated when dealing with international clients
Shell businesses and subsidiaries
The Pandora Papers, which exposed the shell accounts of influential individuals and companies, revealed the extent to which individuals and companies use offshore entities and trusts to avoid taxes and hide assets. The papers showed how easy it is for individuals and companies to set up offshore entities and trusts, highlighting the need for lawyers to be particularly vigilant when dealing with international clients.
Law firms, in particular, have a significant responsibility to ensure that their clients are not engaging in illegal activities, such as money laundering or tax evasion. The Pandora Papers demonstrated that some of the world’s most powerful and influential people were using offshore entities and trusts to hide their wealth and assets, making it challenging to identify whom they were doing business with and to ensure that they were not involved in criminal activities.
Lawyers need to ensure that their clients’ transactions are transparent and legal and that they understand the source of their funds and the beneficial ownership structure of their companies.
One of the most significant risks is the distance involved in dealing with international clients. If a client is located overseas, it is unlikely that you will meet the client in person during the transaction’s lifetime. Working in different time zones can also mean that communication can be limited to email, making it more difficult to pick up on red flags you may identify when meeting the client face to face.
Different countries’ nuances
Different countries have different laws and regulations, making it challenging to navigate the various nuances associated with working with international clients. It is unrealistic to expect your staff to be specialists in every jurisdiction where a client might reside. The lack of specific jurisdictional knowledge can make it difficult to identify potential risks or red flags.
Working with international clients may also involve communication challenges due to language and cultural differences. These challenges can make it difficult to establish and carry out due diligence processes.
Identity verification and Source of Funds
International transactions often involve payment risks, such as currency fluctuations, payment delays, or payment fraud. Not only are there risks when dealing with international clients when receiving payments, but legal professionals also need to be able to obtain sources of funds from their clients where they are representing clients dealing with financial transactions.
Political risks associated with working with international clients can include sanctions, civil unrest, and changes in government policies. These risks can lead to a significant impact on the transaction or the client’s ability to meet anti-money laundering regulations, Know Your Customer (KYC) requirements, and other regulations. Different countries have different regulations and compliance requirements that must be adhered to when working with international clients.
Relying on foreign third parties for due diligence
Different jurisdictions have different legal systems, and working with international clients can involve navigating multiple legal systems and agencies in that jurisdiction. For legal professionals dealing with international clients, retrieving documents, or going through multiple registers can be a real challenge, especially for those firms still using traditional methods of KYB.
One of the major issues that lawyers face when dealing with international clients is the reliance on documents and agencies in another jurisdiction that could be fraudulent. This is particularly challenging when dealing with high-value transactions, such as property purchases or mergers and acquisitions, where the stakes are high and the risk of fraudulent activity is elevated.
The reliance on documents and agencies in another jurisdiction can pose significant risks for lawyers. For example, they may not have the necessary expertise or knowledge to verify the authenticity of documents or the reputation of agencies in other countries.
What information is required for KYB?
Starting with the basics is crucial when conducting KYB checks. You should verify the legal name of the business, its physical address, and any other relevant identifying information by reviewing official documents such as business licenses, registries, and other government records such as Companies House.
Each country will have its own jurisdictional register that will hold information that you can access. These include business registration information, articles of association, key business owners and shareholders information, financial information, and any adverse media.
Verifying the ultimate beneficial ownership of the business is another critical aspect of KYB checks. You must also have a detailed understanding of the company structure and any other subsidiaries. You must identify the individuals or entities that ultimately control the business and ensure that they are not involved in criminal activity.
Additionally, when conducting KYB checks, it is essential to consider any industry-specific risks associated with the business. For example, if you are dealing with a business in the financial sector, you may need to conduct additional checks to ensure that they are not involved in money laundering or other financial crimes. This may require further documentation from the company that you are dealing with and requires a risk-based approach.
How can Verify 365 streamline your firm’s KYB checks?
Single source of truth and audit trails
Verify 365 offers a centralised platform for all KYB and KYC checks, simplifying the process for firms and allowing easy reporting on screened individuals and businesses. By streamlining your company check processes through Verify 365, you can create an all-important audit trail, including reporting on what was checked, when it was checked, and whom it was checked by – should regulators come knocking at your door, you can demonstrate very clearly the lengths you’ve gone to do so and grab that information where needed from that one single source of truth.
Assurance and accuracy
Verify 365 only works with live data taken directly from the jurisdiction’s relevant National Register, providing you with the assurance that what you see in the report returned is accurate at the time of running it. The sanctions databases are updated every couple of minutes, ensuring that you always have a thorough understanding of any risk surrounding the business you’re working with through the utilisation of the ongoing monitoring sanctions screening.
Timesaving and security
By eliminating the need for professionals to manually retrieve documents and spend hours scrolling through national registers, Verify 365 saves time by retrieving the required information instantly through our live data sets.
KYB checks can be initiated through a few simple clicks, and depending on the jurisdiction reports can be received as quickly as within a matter of minutes. This makes the process far quicker, simpler, and more secure than the traditional approach to KYB.
UBOs and company structures
Verify 365 KYB ultimate beneficial owner search provides a real-time breakdown of the ownership structure of a business, accessing multiple national registers to give you a full understanding of any individuals or entities involved. Our platform also offers the ability to help your firm deal with any corporate client from the UK or wider afield. You can also carry out further company checks, identifying the individuals that may be linked to the company that you are dealing with to ascertain further risk.
KYB/KYC checks in one platform
With Verify 365, you have access to initiate both KYB and KYC checks in one centralized platform, allowing you to streamline your compliance processes and improve your internal efficiency. Once you have identified the directors or shareholders of a business, you can carry out further checks such as NFC-based identity verification, source of funds, open banking statements, and even get documents signed with our eSignatures.
By having all these features in one platform, you can easily manage and monitor risks associated with your clients and ensure compliance with regulatory requirements. This also saves you time as you don’t have to switch between different systems or manually gather information from different sources.
The consequences of not implementing effective KYB checks can be severe, resulting in financial loss, damage to reputation, and even criminal charges. By utilising Verify 365’s platform, businesses can take advantage of advanced technology to streamline the KYB process, ensuring they remain compliant and protected from risk.
With Verify 365, companies have access to a comprehensive suite of KYB services, including identification verification, ultimate beneficial owner search, official document requests, ongoing monitoring, and much more. By consolidating these functions onto one platform, organizations can increase internal efficiency, reduce costs, and enhance their risk management practices.
Take the necessary steps to protect your business and ensure compliance with KYB regulations by partnering with Verify 365.
Contact us today to learn more about how we can help you optimize your KYB process and safeguard your firm against financial and reputational harm.