How to verify businesses?

Verifying firms and merchants is not just a statutory requirement, but also an effective risk mitigation tool in many industries. 

This is especially true in the United States, where laws and regulations require orgaisations to have sufficient verification methods before providing services. For example, the Financial Action Task Force (FATF) has made proposals for financial institutions to do KYB checks on their customers. 

Conducting business verification demonstrates a company’s commitment to defending its customers and partners’ interests. This can help to create trust and confidence in the long term. Validating companies can also assist you avoid fraudsters, who frequently form fraudulent businesses to launder money or commit other crimes.

What is business verification? 

Business verification is the process by which one organization gathers and validates information about another firm in order to onboard or sustain that business as a customer or partner. Its objective is to determine whether a business exists and is being represented correctly. 

The terms Know Your Business (KYB) and business verification usually refer to the same process. 

Why is it important to verify a business? 

It is critical that you check your own and others’ businesses before engaging with them for the following reasons: 

1. Fraud prevention: Verification reduces fraudulent activity by identifying organisations with a history of frauds, false information, or unlawful operations. This protects organisations against financial loss and reputational harm. 
2. Financial Stability: Knowing a company’s financial health is essential. Verification assists in determining creditworthiness and identifying potential financial issues that may affect a relationship. 
3. Legal Compliance: Regulations differ between industries. Verification verifies that the business has the essential licenses and permits to operate legally. As a result, any potential legal concerns are avoided. 
4. Increased trust and confidence: Knowing you’re dealing with a respectable business fosters trust and confidence. It establishes a solid foundation for effective collaborations. Verification enables investigation into a company’s customer evaluations, previous legal proceedings, and general industry status. 
5. Safeguarding: Verify a business’s legal status to avoid interacting with unregistered or non-compliant entities. This protects you from potential legal difficulties and ensures you are working with a respectable provider. 

What actions are needed to verify a business? 

On-site inspections have become increasingly impractical as more corporate transactions take place online. With the simplicity of creating bogus companies, documents and profiles, the potential of fraud has increased. The risk isn’t just financial, but also reputational – nobody wants their business to be associated with a criminal, or worse. 

For regulated companies, such as financial institutions, company information is necessary when opening accounts. 

• Depending on the jurisdiction and perceived level of threat, this data includes: 
• The location of the business occupation or type of the business 
• Purpose of business transactions anticipated patterns of activity in terms of types of transaction 
• Expected payment origins and methods 
• Articles of incorporation, partnership agreement, and business certificates 
• Beneficial ownership disclosure as per requirements of United States’ Corporate Transparency Act

Additional information requirements, such as beneficial ownership information, are required in cases where Enhanced Due Diligence applies. 

Depending on the jurisdiction, there are different criteria for collecting company information. One method is to search about the company on US Secretaries of State websites.

How to verify firm ownership or the Ultimate Beneficial Owner (UBO)? 

Ultimate Beneficial Owners (UBOs) are commonly defined as individuals who hold at least 25% of a company’s stock and/or at least 25% of voting rights in the company’s high-level decision-making processes. 

Despite that definition being rather straightforward, determining who owns a business isn’t always clear-cut. Businesses might have unique corporate structures with confusing names for officials. When a company has such a convoluted chain of command, it can be difficult—at least on the surface—to distinguish who actually owns the company from who is just voted to oversee its daily operations. 

It is also possible that this is done on purpose to conceal the genuine level of risk that a company’s owner(s) pose, or to cover for them while they engage in illegal activities behind the scenes. Legitimate enterprises frequently have their UBO(s) recorded in official registers.

Searching for a firm in an online government database or submitting a public information request to a government is usually a reliable (although expensive and time-consuming) technique to verify corporate ownership. This information may also be available in other public databases or by contacting the company directly. 

How can Signzy help you? 

Onboard businesses and individuals worldwide without worrying about various regulatory compliances. Complete legal obligations such as KYC, KYB, and AML checks seamlessly. at one place. Visit our website now for more info.