Similar to the identification and monitoring applied to individual accounts, corporate accounts also require know your client (KYC) practices. In this article, we will highlight the logistical challenges organisations face when implementing and conducting KYB on its customers.
Though the Know Your Business (KYB) process holds broad comparisons to KYC for individual customers, the details are different. Corporate customers generally have higher transaction volumes and amounts, as well as other higher risk factors.
Organisations must implement the following key processes to implement an effective KYB program which identifies and categorises high risk customers.
Data Gathering
Even though specific information that organisations gather may differ from region to region, organisations still need to gather information methodically and incorporate it into their workflows. Information that can be used to identify and verify an accurate company record includes:
- Registration number
- Registration documents
- Licensing documentation
- Company name
- Company address
- Company status
- Identities of directors and owners
Company Ownership Structure and Percentages
Organisations must determine the entities or persons who have an ownership stake, either through direct ownership or through another party. Organisations can have multiple owners with different rights and liabilities, such as greater decision-making power or higher economic benefits.
Identifying the Ultimate Beneficial Owners (UBOs)
The ultimate beneficial owner (UBO) is an individual who owns or controls more than 25 percent of the shares or voting rights in a legal entity. They hold the right to appoint or remove most of the board of directors or have the right to exercise significant influence or control over the company.
Performing Additional AML/KYC checks on UBO individuals
For all individuals determined UBO must undergo additional AML/KYC checks. Know Your Customer (KYC) procedures and sanction screenings help to ensure that the UBO can be identified, and customer due diligence completed. In addition to UBO, there is something referred to as the Ultimate Parent Company (UPC) which is also subject to screening.
Complying with KYB Regulations
To comply with KYB regulations, and similar regulations imposed by region, organisations must employ an AML framework. Organisations should assess the level of risk that their business associations and implement an adequate AML control, including:
- Sanctions Screening: organisations must perform screening on companies and their employees against sanctions lists such as the OFAC sanctions list, the UN sanctions list, and the EU sanctions list.
- PEP Screening: companies that are exposed to political corruption present an increased level of AML risk. Therefore, organisations should screen companies to establish their politically exposed person (PEP) status.
- Adverse Media Screening and Monitoring: organisations should monitor companies for their involvement in adverse or negative news media stories that might indicate their involvement in criminal activity. The monitoring process should be ongoing and include traditional screen and print media as well as online sources.
- Due Diligence: organisations should perform suitable due diligence on the companies they have relationships with to establish and verify UBOs. Where there is an increased AML risk, organisations should perform enhanced due diligence, subjecting businesses to an increased degree of AML scrutiny.
- Transaction Monitoring: certain transactional behaviours may indicate that a company is involved in money laundering or terrorist financing activity. Uncommon regularities, volumes of transactions, or transactions with high-risk countries often represent money laundering red flags.
For over a decade SQA Consulting has been a global market-leader supporting our diverse blue-chip client network with their AML requirements.
We provide consultation on all aspects of KYC and KYB strategies and can assist in the implementation of processes to ensure compliance to regulatory standards. To learn more please email aml-prevention.services@sqa-consulting.com or call +44(0)161 503 0533.
