What is KYB (Know Your Business)?

Know your customer (KYC) processes are a fundamental element of AML/CFT regulations in most jurisdictions around the world. KYC requires banks and other financial service providers to verify and verify the identity of their customers in order to assess their money laundering risks and understand their trading behavior. However, similar verification measures are required when financial institutions transact with other businesses as part of supply chains, stakeholders, beneficiaries, or similar relationships. In this context, that verification process is called Know Your Business (KYB).

As an extension of the KYC process, businesses need to understand the methods and practical ways to achieve KYB compliance. AML/CFT measures For that you need to implement it.

Know business regulations

KYC laws have been a standard AML mandate around the world for decades and were introduced in the United States with the USA Patriot Act in 2001. To assist in the detection and prevention of terrorist financing activities. However, at the time, companies regulated under the Patriot Act were not required to subject related companies to the same his AML/CFT oversight. This disparity has created a blind spot where criminals can use financial relationships between companies to hide their identities and launder money.

In 2016, the U.S. Financial Crimes Enforcement Network (FinCEN) addressed the AML blind spot by introducing the Know Your Business rule in its Customer Due Diligence Requirements for Financial Institutions (also known as the CDD Final Rule). Other global regulators have introduced similar regulations. For example, the EU's Fifth Anti-Money Laundering Directive (5AMLD) emphasizes the KYB process, and the upcoming 6AMLD will increase penalties and penalties for KYB violations.

What does it mean to know business?

Know Your Business (KYB) is the process of verifying the ownership of a company and the legitimacy of its activities before entering into a business relationship with the company.

Know Your Business has the same purpose as KYC in that it is a way for mandated companies to assess and understand the AML/CFT risks posed by new and existing business relationships. The KYB process is supposed to help companies investigate the entities they are doing business with and determine whether they are genuine or are being used to hide the identity of their owners for illegal purposes.

Therefore, KYB needs to focus on ultimate beneficial ownership (UBO) to uncover who is benefiting from questionable corporate financial activities. For example, criminals or other high-risk individuals may do so.Setting up a business in a less regulated offshore jurisdiction To trade anonymously with legitimate companies in other parts of the world and avoid scrutiny of standard AML/CFT measures. Similarly, companies must ensure that they or their employees are not subject to international sanctions, subject to political corruption, or subject to news reports that may indicate they are involved in criminal activity. You need to figure out if it is.

What does KYB require?

Although specific regulations vary by jurisdiction, KYB regulations generally require companies to conduct appropriate due diligence and collect and analyze a variety of data and information about the business with which they are involved. To establish beneficial ownership, KYB regulations may require identifying information such as:

• Company address
• Registration documents
• License documentation
• Identity of directors and owners

Companies may refer to a variety of official and private resources to conduct KYB checks. These include publicly available government registers and records, and global corporate registries. When verifying the identity of individuals employed by or affiliated with a company, in addition to proof of address and date of birth, official documents such as passports, driver's licenses, and bank statements are required. may be required to be collected.

KYB goes beyond the need to establish UBO and should be considered an ongoing AML process. This means that companies conduct KYB throughout their business relationships and regularly check companies against sanctions lists for detection of political corruption or other indicators that they may be involved in financial crime activity. It means you need to check.

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Know Your Business / How to comply with KYB rules

To comply with FinCEN KYB regulations and similar regulations imposed in jurisdictions around the world, companies must implement risk-based AML programs. In practice, this means that companies need to assess the level of risk posed by their business relationships and deploy appropriate AML responses that include some or all of the following controls:

• due diligence: Companies should conduct appropriate due diligence on the companies they have relationships with to establish and verify UBO. If AML risks are increasing, companies should conduct enhanced due diligence and increase the degree of scrutiny of his AML on the company.
• Transaction monitoring: Certain transaction activities may indicate that a company is involved in money laundering or terrorist financing activities. Unusual frequency or volume of transactions, transactions slightly below reporting standards, or transactions with high-risk countries are often red flags for money laundering.
• Sanctions screening: Companies must inspect them and their employees against international sanctions lists, such as the OFAC Sanctions List, UN Sanctions List, and EU Sanctions List.
• PEP screening: Companies exposed to political corruption may be at increased risk of money laundering. Therefore, companies must screen their companies to establish politically exposed person (PEP) status.
• Monitoring for harmful media: Companies should monitor their involvement in adverse or negative news media articles that may indicate involvement in criminal activity. The monitoring process should be continuous and include traditional screens, print media, and online sources.

Automated KYB solution

The KYB process requires companies to collect, analyze, and manage vast amounts of data about the companies they interact with. Performing KYB checks manually takes a lot of time and labor, and is prone to costly human errors. To overcome this challenge, companies should aim to introduce automated solutions into their KYB, integrating smart technology tools into their AML/CFT infrastructure to be faster and faster than human compliance employees. You need to perform the necessary checks and processes efficiently.

Beyond the speed and efficiency benefits of automation, smart technology's AI and machine learning tools can help financial institutions identify patterns in AML data and respond more accurately and effectively to suspicious changes in corporate and employee behavior. You can. Finally, integrating smart technology into his KYB processes will allow companies to better adapt to regulatory changes (such as the upcoming 6AMLD) and changes in criminal methods, ensuring high standards of KYB compliance in the future. can continue to provide.