Business Verification Services

What Are Business Verification Services?

Business verification services support organizations to comply with their Know Your Business (KYB) obligations. They involve gathering and verifying information – such as company registration details, legal name and address, and ownership structure – about business entities.

Business verification services enable companies to know who they are working with. This means they can assess whether their associated companies present a risk of money laundering and/or other fraudulent activity.

These checks are essential for complying with anti-money laundering (AML) regulations such as the 6^th Anti-Money Laundering Directive (6AMLD). This means they are an important way for businesses to comply with their legal obligations and avoid the fines and reputational damage associated with not doing so. Santander’s painful £108 million AML fine in 2022 should serve as a stark reminder of the importance of this.

Business verification services are all about checking that business entities are real, authentic, and not involved in money laundering, terrorist financing, or other financial crime. They apply to a range of stakeholders and beneficiaries, from suppliers to funders. Robust business verification processes analyze these companies and uncover their ultimate beneficial owners (UBOs) – that is, anyone who owns at least 25% of a company’s shares.

The terms “business verification services” and “Know Your Business” are closely related and often used interchangeably, as both refer to verifying the identity and legitimacy of business entities.

How Do Business Verification Services Work?

Companies can purchase business verification services that they can tailor to their specific needs. These services work by checking up-to-date online data sources such as public records, credit data, and government registries, providing results almost instantaneously.

Such systems may use automation, machine translation, and other artificial intelligence and machine learning capabilities, depending on the user’s needs and the details of the businesses being checked and verified.

To be effective, business verification services must be both fast and reliable. They need to return detailed information rapidly about not just business entities but their ultimate beneficial ownership arrangements. They do this by checking companies’ digital business credentials online and flagging up any instances where businesses don’t return the expected results.

At this stage, human intervention is required to assess how best to take the process forward – i.e. whether to request further information about the business entity that has been flagged or whether to walk away rapidly from any dealings with it. This means that businesses must ensure their key members of staff are trained on how to use business verification services, what their legal obligations are (and why), and which processes to follow when organizations don’t tick the right boxes during the verification process.

Why Is It Important to Identify and Verify Businesses?

Identifying and verifying businesses is important because it helps organizations reduce their likelihood of becoming involved in money laundering, terrorism financing, or other financial crime. It also ensures that businesses are:

• achieving legal compliance
• making life harder for money launderers and terrorism financiers
• avoiding fines
• avoiding reputational damage
• reducing corruption
• maximizing growth opportunities

Let’s look at each of these in a little more detail.

Business verification checks are crucial for businesses to meet their legal compliance obligations. In Europe, this means complying with 6AMLD. In the US, it means meeting the requirements of the Bank Secrecy Act, USA Patriot Act, and the Anti-Money Laundering Act of 2020, as well as state-specific regulations. Many other countries have their own legislation in this area, meaning that businesses that operate in those territories must comply with the local legal landscape.

By complying with these legal requirements, businesses make it harder for fraudsters to carry out financial crimes such as money laundering.

It is also important to identify and verify businesses in order to avoid fines – and worse. Non-compliance with anti-money laundering regulations, and with regulations relating to the prevention of terrorism financing, can lead to hefty fines and potentially even jail time. As both fines and jail time are a significant blow to a business’s reputation, business verification checks are also essential to maintaining customer trust.

The benefits of enhancing business verification extend even further, as companies that implement these checks must have robust and transparent processes in place. This can help them avoid other forms of corruption that might otherwise have been hidden within murky processes.

Finally, identifying and verifying businesses can help companies lay solid foundations for growth by creating an environment based on transparent, secure, and trusting partnerships.

Red Flags to Detect Non-Legitimate Businesses

Using business verification services can result in a range of red flags popping up. They indicate that a business could be a fake entity or other non-legitimate operation.

Red flags can include one or more of the following:

• No company number: Every legally incorporated business should have an identifying number of some sort, such as an Employer Identification Number (EIN) in the US or a registered company number in the UK.
• No business address: Not being able to quickly find a business address is a definite warning sign.
• No landline number: Suspicious businesses are far less likely to have a landline phone number than their established and legitimate counterparts.
• No privacy policy: Properly established businesses include a privacy policy on their websites, so the absence of such a policy is another red flag.

As you dive into more detail about a business, there are also red flags in terms of how they operate and conduct their finances. These include:

Complicated company structures: These may be set up to hide ultimate beneficial ownership (UBO) arrangements. In addition to confusing subsidiary and joint venture arrangements, money that flows through related entities and/or numerous bank accounts should also be treated with suspicion.

Complex money movements between accounts: If balances are whizzing from one account to another – meaning you could lose track of the original transaction – it’s time for caution.

Transaction details are missing or unclear: Undocumented corporate credit card use, lack of clarity over payments, poorly documented cash withdrawals, and confusing accounting records are all major warning signs.

Tinkering with previous years’ accounts: Look out for alterations to business accounts after the year-end audits have already been carried out.

While there might be an innocent explanation for any one of these factors, any organization that raises one or more of these red flags should undergo more intense scrutiny before being approved as part of a trusted working arrangement (or not).

Challenges for Businesses Verification Services

Geographic, linguistic, and even cultural barriers can make verification checks harder and slower than many businesses would like. For instance, it is particularly challenging to undertake business verification checks across international borders.

Language barriers are the most obvious example of these challenges. Understanding and interpreting legal documents and business records in another language can quickly lead to misunderstandings and inaccuracies – hardly the basis for solid business verification checks.

Another challenge is that different countries and regions have different compliance, legal and regulatory frameworks in place. The need to comply with data protection requirements when undertaking business verification services is a clear example of the difficulties that this can create.

While the EU has a comprehensive and unified data protection framework in place (namely the General Data Protection Regulation – GDPR), the lack of a comparable federal-level privacy law in the US means that businesses have to comply with varying state-specific requirements regarding data privacy, including when undertaking verification checks.

In other countries, access to information can be a challenge. Some countries have limited public records or restrict access to business information, which can make it hard to verify the legitimacy of businesses from such territories. Lack of standardization, time zone differences, different local attitudes to corruption and bribery (and the corresponding prevalence thereof), and numerous other factors can all mean that engaging with an organization that operates internationally can quickly become a stressful time drain.

Add in the heightened risk of fraud associated with international digital payments, and there is much to worry business owners seeking to carry out business verification service checks. This is why having the right fraud prevention solutions plays such an important role in helping businesses meet their obligations to both identify and verify business entities.

Tips to Enhance Your Business Verification Processes

Business owners who are worried about their business verification processes can undertake several actions to help them sleep better at night. Purchasing a business verification solution is an obvious choice, with many systems able to span international borders and language barriers in seconds. Examples of business verification systems and services that can help reduce business owners’ stress levels include Trulioo, Onfido, Jumio, and, of course, SEON.

Businesses can also work with other organizations to share their knowledge, ultimately building partnerships and networks that they know they can trust. The Better Business Bureau, for example, makes it easy for those in the US, Canada, and Mexico to judge how trustworthy a business is. While designed for consumers, it is also a useful tool for businesses to use if they need to check up on a company.

Large-scale networks such as the Entrepreneurs’ Organization, Business Networking International, and the American Marketing Association are also excellent routes for sharing information relating to trustworthy (and untrustworthy) businesses.

Putting robust processes in place to deal with any red flags is another crucial part of enhancing business verification processes, including through staff training and appropriate software solutions.

By taking all of these steps, business owners can ensure they meet their legal obligations and enjoy the resultant peace of mind.