Knowing exactly who the business customer is and knowing their reputation is increasingly important in transactions between companies. More than half (65%) of B2B companies offered e-commerce services in 2022, according to McKinsey consulting data. The global B2B market is growing rapidly and is on track to reach over USD 20 trillion by 2027. Also the means of payment has been undergoing rapid change since the beginning of the Covid-19 pandemic in 2020, when the traditional use of Paper checks have largely been replaced by digital payment solutions in business to business transactions.
Despite saving time and money, companies should increase their security measures to avoid the risk of fraud. Research by the Association for Financial Professionals (AFP) reveals that 71% of companies surveyed were victims of payment fraud activities in 2021. Check fraud spiked 66%, while payment fraud through ACH debits (Automated Clearing House) – automatic compensation – reached 37%. Electronic fraud, on the other hand, is on the decline and has dropped to 32% in 2021.
A study published in the Harvard Business Review shows that at the bottom of the pyramid are the table stakes: meeting specifications at an acceptable price, complying with regulations, and respecting ethical standards. B2B companies still focus most of their energy on these functional elements. Computer networks and digital data are regularly used by companies to handle daily operations and business processes. Online transfers and storage of personal and financial data is expanding. On the other hand, increasingly sophisticated frauds require reinforced security measures.
Cybercriminals are becoming more skilled and going beyond standard bank account hacking to open fake cell phone accounts, online business accounts, and internet payment accounts using the credentials they have obtained. Results of comprehensive research conducted by Verified Market Research reveal that the size of the identity verification market – valued at US$6.5 billion in 2020 – is expected to reach US$20 billion by 2028.
According to Tony Petrov, Chief Legal Officer at Sumsub – an all-in-one verification platform – and an expert in Compliance and Money Laundering Prevention (PLD), to stay safe and compliant, companies need impeccable diligence when it’s regarding your customers and partners. This means conducting proper background checks, clarifying the ownership structure of companies, identifying ultimate beneficiaries (UBOs) and much more.
“When these steps are neglected, governments can impose significant penalties. It is worth mentioning that the sanctions scenario is a minefield mainly for financial institutions. Knowing the risks and dangers involved in violating sanctions regulations is not enough. That’s why employing triage/screening of sanctions is more important than ever”, says the executive.
Petrov reveals that Sumsub has just released a Guide on KYB Verification Trends and Best Practices for free (know-your-business). “This is a material that details the verification process for a legal entity and shares best practices from clients along with helpful compliance tips. The goal is to make the integration of companies easier and safer, which is different from the integration of individuals”.
The Compliance expert says that by incorporating legal entity checks into their customer onboarding flows, companies protect their reputation and avoid potentially huge penalties from regulators. Additionally, Petrov cites the top five business verification trends highlighted in the guide:
- Final Beneficiary Verification (UBO) remains one of KYB’s biggest challenges due to jurisdictional loopholes;
- UBO status is now assigned to controlling 10-25% of a company, depending on the jurisdiction, and must be verified in accordance with AMLD5. The 5th Anti-Money Laundering Directive is European Union legislation that prevents European Union financial institutions and virtual asset service providers from being used for the purposes of money laundering or terrorist financing;
- While business verification rules are generally similar around the world, each country has its own compliance differences that must be noted. In the United States, for example, business verification regulations exist as a result of the Bank Secrecy Act (BSA), but are enforced by the Treasury Department’s Financial Crimes Enforcement Network (FinCEN). In countries like China, however, only one institution – the People’s Bank of China (PBOC) – regulates the KYB;
- The use of offshore islands and tax havens for fraud and money laundering has become a common occurrence. Investigations into bankruptcies, VAT (value added tax) fraud and other illegal practices reveal “phantom companies” that carry out illicit activities. It is therefore crucial to determine a company’s structure, ownership, purpose and activity through due diligence (prior investigation), such as KYB;
- Sanctions triage is becoming increasingly important as the geopolitical situation changes. Even unregulated companies such as car-sharing services or marketplaces must also check for sanctions to ensure there are no restrictions on cooperation with a counterparty.
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