For business growth, it is integral to bond with companies, but it is quite challenging. If the onboarding business is shady, it is exposed to fraud. While making business bonds, the fraudsters are the real threat to the partner company. Any scam can happen, which directly affects the business financing and its reputation in the industry. With the increasing threats of finance, it is necessary to onboard third parties after rigorous screening. Business verification is helpful in identifying the legal status of the company and the potential risk associated with it. In this article, let’s discuss the importance of verifying business processes when onboarding new businesses.
Understanding of Business Verification
Business verification is the process of inspecting third parties by collecting information and screening against official databases. The business must collect third-party data, which includes the company name, address, contact information, tax reference number, and shareholding details. The collected information must be checked against the official records of the country’s public registry and other relevant authorities.
· Business Information Collection
In the first stage, the business must collect third-party information to evaluate legitimacy. For this purpose, the business must collect the following data.
- Company name
- Physical Address
- Employer Identification Number
- Tax reference number
- Contact information
- Website
- Business activities details
Additionally, business documentation regarding the financial status of the company is collected. It primarily includes the bank statement, the tax record, the cash flow statement, and other official documents.
· Data and Documents Screening
In business verification, it is essential to review the gathered data and documents. Each country has its own parent registry portal in which each business is registered. The registered business gives access to their information to the official registry. In country databases, the name, address, registration number, tax number, and sometimes shareholder details are available. The publicly registered business data can easily be accessed to validate the company’s legitimacy. If not, then the business has to rely on Know Your Business service providers for this purpose.
· Ownership Identification & Verification
The ultimate beneficial owners behind the business are the masterminds with significant shares in assets. A beneficial owner, director, or shareholder in the company can be the UBO. While conducting business verification, it is crucial to understand the ownership structure of the third party. The business must ask the counterparty to submit the UBO details, including name, address, contact number, capital, and number of shares. All the collected UBO details must be screened against the parent registry if the UBO data is publicly available. Additionally, shell companies have a policy to hide shareholders’ details, so it is more difficult to verify UBOs.
· Performing AML Checks
The business verification includes checking that the third party complies with anti-money laundering laws. The primary goal of AML checks is to verify whether the business and shareholders comply with regulations. Onboarding the sanctioned person in case of money laundering may lead to heavy penalties. To prevent legal penalties, it is essential to ensure that the business complies with regulations. Furthermore, background checks are applied to the company to identify potential risks through sanction list checks, watchlist checks, and politically exposed person PEP checks.
· Adverse Media Screening
In adverse media screening, business information is collected from reliable resources and screened against official databases. The evaluation of the business through negative media screening verifies false positives and identifies false negatives. It is also a constant form of screening to be updated about the partner companies’ news on media. Any black money case or wrong policy gets detected promptly so businesses have security in finance.
· Enhanced Due Diligence
The enhanced due diligence involves the constant monitoring of the partner companies. The business must regularly check third parties to detect potential risks. The maintenance of financial records is important for identifying suspicious activities and reporting them to the appropriate authorities. The significance of enhanced due diligence is that it offers real-time screening to verify business legitimacy. Additionally, EDD helps to stay vigilant about shareholders; if the UBO status is updated, the business company will be able to know.
· Concluding Remarks
Business verification is the way forward to ensure financial security for companies. The information collection and screening reveal the legal status of the companies. For financial transparency, the business’s financial documents are evaluated. Once the business validates the legal status and financing of the counterparty, then it is safe to onboard. In the current business world, relations are established after a complete investigation of third parties. It will result in smooth business onboarding and a boost in reputation for the long term.