Importance of Business Verification Services in Risk Mitigation

Onboarding the business without inspection of its legal and financial status is constantly exposed to risks. The unverified business may be involved in money laundering, terrorist financing, corruption, and other financial crimes. When the corporation partners with the company without business verification services, legal consequences such as hefty fines and sanctions may result. The company, which has a history of black money, may scam the partners, which causes significant loss in financing and faces reputational damage. To tackle such risks, corporations must go through a detailed investigation of the companies while hiring them. Read this article to discover how business verification helps to build transparent financial relations and reduce risk in the future.

Business Verification Process

Business verification is the process of reviewing the company’s information to evaluate its legal status. This involves the inspection of data and documents specific to the industry. The collected data is screened against the registered databases to scrutinize its legitimacy. Corporations must understand the ownership structure of the company to inspect its financial status. In this two-minute read, explore the crucial steps of the business verification process. 

• Information Gathering

In the Know Your Business verification process, the business data, including its name, physical address, mailing address, registration number, and tax reference number, is required. The corporation must collect this information and detect if there is any missing or valid data provided by a business partner. Document collection is also necessary, including bank statements, cash flow statements, income statements, balance sheets, and other documents relevant to the industry.  

• Cross-Checking Documents

The next step for Business verification is cross-referring the collected data against official legal authorities’ databases. The corporation must scrutinize the documents, which helps in determining the legal and financial status of the company. The missing or invalid documents raise red flags that help corporations to manage their risk further. 

• UBO Verification

The ultimate beneficial owner, UBO, is an entity that holds 10 to 25% of the company’s assets. UBO may be a person or group of beneficiaries, directors, and shareholders. For KYB Verification purposes, the corporation must ask for the UBO name, residential address, contact number, photocopies of passport ID and license, and other relevant documents. It is hard to identify UBO in shell companies or companies with multi-layered structures, so there is a risk of financial crime. To avoid risk, corporations must verify the UBO of the companies while onboarding them. 

• Adverse Media Screening

In today’s digital world, business news is published on different platforms. While onboarding, the corporation must collect information about the company from multiple reliable sources, including newspapers, radio, television, and social media platforms. The screening of all the collected news against the databases is the adverse media screening. It helps detect false positives and negatives, which is important for risk management. 

• Conduct Background Checks

Money laundering is the real-time threat to the corporation from its business partners. If the company has a criminal record, it is prone to financial risk for others in the market. The corporation must apply background checks over onboarding companies to evaluate their legal status. Legitimate companies pass background checks, and they are reliable enough to onboard. However, illegitimate companies raise red flags that need further scrutiny to monitor risks. 

Additionally, anti-money laundering AML checks are necessary while onboarding the companies. It helps to detect money laundering and other suspicious activities by companies. Companies that comply with obligations are eligible to establish financial relations. 

• Enhanced due diligence

Companies that fail to pass the background checks or raise red flags in legal matters are considered high-risk profiles. Avoiding such companies to make bonds is not a possible solution, but the other way is to hire them under surveillance. Enhanced due diligence is an approach to monitor and assess risks while establishing a bond with risky companies. An ongoing monitoring process updates the corporation about suspicious transitions and activities. 

Ensure Smooth Business Onboarding

The business verification process is reviewing the companies to make legitimate bonds among them. The investigation of the company helps the corporation to make the onboarding process smooth and confident. This helps to evaluate the legitimacy of the company through data collection and screening. It ensures the corporation that onboarding companies comply with laws and regulations designed by legal bodies. The red flags are identified, so the corporation plans to deal with them on time. This minimizes the risk of sanctions, penalties, and hefty fines for the business partners. In the end, secure financial relations are built, which boosts business operations and reputation in the market.