Significance of Corporate Compliance to Prevent Fraud

The KYC (Know Your Customer) rules, aimed at fighting against money laundering (AML), have been the global trend since the introduction of the US Patriot Act in the year 2001. Inadequate measures, however, exist for companies that were not KYC-verified, most of which were based overseas. However, in 2016, FinCEN added corporate compliance rules as part of the Customer Due Diligence Requirements for Financial Institutions (the CDD Final Rule). With the final rule, financial institutions have to now replace AML with customer due diligence, more specifically with corporate compliance solutions, before they begin B2B partnerships or deal with any kind of business.

Importance of Know Your Business Solutions

By using business verification solution, firms may come across technology that can be employed to process information from different vendors, such as public records and government databases. The process of data processing is executed automatically, which means that the employees don’t have to enter the data manually anymore, and the time and effort that is needed for this procedure are also eradicated. Tying all the elements of the company results in knowing how the enterprise is operating and its real market standing. The use of the court document allows the company to create a detailed and complete framework that includes the name, ownership, risk category, media information, and compliance status.

The corporate compliance solution is the backbone of establishing and implementing an effective risk management system that will protect not only the business but also the reputation of the financial system. Additional benefits that highlight the importance of corporate compliance screening include: 

  • The danger of choosing a dubious company or scam will be reduced significantly when the assessment is trustworthy.
  • Through that, the industry takes steps to verify the authenticity of the firm’s multiple identities. 
  • Screening procedures could also be employed to identify misleading websites and identify companies that are operating illegally or are complicit in crime financing.

Business Verification Process  

Because of KYC, compliance firms need to go through a lengthy list of requirements while conducting any financial operations. The process will be gathering and confirming information about the company, the shareholders, and what it does, those being the owners, and they must comply with the AML laws to prevent any possibility that money laundering or terrorist financing may occur.

  • Gathering Information

In corporate verification, enterprises ought to gather their business documents as well as details. Listed documents include the registration documents, the address, and the license or ownership documents. Likewise, it is necessary to obtain the names of the companies’ boards of directors. This piece of evidence is accurate, as it comes directly from a reliable source that is confirmed to be original. 

  • Cross-referencing Documents

The corporation will then seek the documents through the business that surrounds the industry to which it pertains. Organize documents, comprising income statement, balance sheet, and bank statement. Documents that are done should be checked against databases that have been registered by authorities. The absences and invalids of a document are suspicious, and there is a notice about a potential risk. Thus, the risks are filtered out in advance to eliminate the risk of red flags. 

  • UBO Verification 

Corporate compliance is very important, and one of the most significant ones is to check the company’s Ultimate Beneficial Owner. The UBO is, by default, regarded as the legal body that has at least 25% of the company’s assets. From start to end, the KYB procedures necessitate identification of one’s UBO and holding the corresponding identity papers or documents required. This ensures that shell companies won’t be able to hire them for dishonorable and dirty activities, as they are guaranteed to be brought to book.

See also: How Effective Vendor Screening Can Help Mitigate Risk and Ensure Regulatory Compliance?

Streamline Onboarding Process 

Corporate compliance means doing a full investigation that leads to the development of banking client relations based on establishing good relations. Access to all registered business data collection is done by cross-checking with the official bodies. The search for criminals and Politically Exposed Persons(PEPs) and business due diligence involves the scrutiny of the businesses and their owners to prevent financial crimes. It aids corporate entities in knowing the possible risks of avoiding fraud and the legal draw out of the consequences. 

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