How important is it to correctly identify the entity you are contracting with?
Whether it is a person or a company, it is absolutely critical from the outset to undertake the correct Know Your Customer (KYC) procedures.
In this article, I will share with you an example, which I have experienced at first-hand.
Having been doing business with hundreds of entities in a country which boasts more than 90 million inhabitants and an estimated 5 million business entities, a new client of ours entrusted us with the task to conduct an initial and basic KYC check on their customers in this country as a legal requirement on their part. A list containing 1,000 names and addresses with some contact details were provided to the Cedar Rose investigations team.
After thorough research and an investigation which included approaches to local authorities such as the ministry of commerce, commercial register, tax department, public records and news publication searches, it was determined that over 40% out of the 1,000 customers our client had on their records were not legal entities duly incorporated in that jurisdiction.
What we Found
We reported our findings to our client who then referred back to their soft contracts.
It turned out that their records only included the basic details submitted by their customers during the on-boarding process.
As it was an online form that our client’s customers had completed, there were minimum checks put in place, and the customers identities, were not verified. Our client also failed to confirm the details with the system they use.
The Importance of In-Depth Onboarding
Bearing in mind that those customers did exist, they did not fully complete their online on-boarding process or they did but at the time our client did not have the means or resources to verify and confirm the information submitted to them. Eager to do business and increase revenues our client’s personnel completed the process of on-boarding and started to do business with those clients, providing their services, and issuing invoices as any business would do.
This is all ok until an issue occurs, invoices are not paid, debts are not collected and legal action has to be taken, aside from any regulatory or compliance audits that are to take place.
Having been alerted to the importance of the correct KYC procedures and the lack of information at hand to identify their customers, our client decided to conduct a full and comprehensive identification of all entities they are doing business with. Through the API (which is a system to system high-security communication also referred to as P2P (Peer to Peer) we were able to process thousands of entity id's with very little to no manual intervention.
The Cedar Rose Solution
Since then, our client conducts all their checks with us via API, and on every entity, they are to onboard. The client has also added monitoring so that they are notified, of any important changes, to their customers circumstances, which they need to be aware of, such as change of owners, change of address, or change of officers or contact details of their clients.
Cedar Rose is currently working with the same client to build a KYB entity verification process.
This time not for their customers but for their complete supply chain, which will enable them to have a comprehensive risk mitigation and compliance procedure in place.
Correct KYC Procedures will Protect Your Bottom Line
In turn, this will reduce their risks, protect their bottom line, and ensure a solid reputation is maintained in the future.
Currently, at Cedar Rose, we can help you access verification data in real-time on over 126 million business entities and over 160 million individuals worldwide.