Business Verification: Digital Tool in Fraud Prevention

Financial institutions are vulnerable to crimes; they face losses due to illicit activities, such as money laundering and terrorist financing. To combat these, international watchdogs designed strategies for anti-money laundering and counter-terrorist financing. Business verification through digital checks assists in complying with these measures and bolsters security in fraud prevention. 

This article will guide how to conduct fraud prevention checks and automation techniques to verify the business. 

How Scammers Conduct Fraud in Financial Institutes? 

There are various techniques that scammers use to proceed with their crimes. In financial institutions, criminals use their services to conduct illicit activities. Below are the ways scammers use to exploit the financial organizations:


Layering is the transfer of money from one account to another. Bad actors use this process to hide the real identity of the actual funders in a layer of legitimate account owners.  Through this, scammers launder their money from one account to another financial institution or country in layering the legal account owners. 

Bogus Businesses 

Scammers also register counterfeit businesses through fake documents. This assists them in laundering money without revealing the business owners’ real identities. Criminals use these bogus registered businesses for various illicit activities, such as money laundering and terrorist financing. 

Account Takeover 

Criminals also hack companies’ cards for illicit purposes. They purchase or use this information to lay out their illegal activities. This information can be from the account owners through phishing, cyberscams, brutal attacks, or fake call centers. Scammers use this to launder the amount from the card. 

Money Laundering 

Financial institutes are most vulnerable to money launderers. Scammers use banks and other platforms to legitimize the illegal trade and track the company. In this process, bad actors utilize financial organizations’ services to enter illegal gain into the legal financial system. This laundered money used in terrorist funding, mass weaponization, or other unlawful activities. 

Why is Fraud Prevention Essential in Small Businesses?

Implementing a plan to identify fraud prevention is significant for streamlining business onboarding and securing the financial system. These KYB measures ensure that the business a company is partnering with is legalized. They also protect companies from various frauds and non-compliance penalties. 

Business verification is one of the most effective techniques to adequately comply with rigid regulations and combat financial fraud. With the help of these companies, they can ensure they are doing business with only legitimate companies.  Furthermore, it also helps companies to identify potential risks and avoid costly mistakes. It also helps to create a more transparent and secure business environment.

How Does Business Verification Prevent Fraud? 

Business verification is a process that reveals the hidden identity of the business through Know-Your-Business checks. The partner business is identified in these companies by verifying their government IDs, such as licenses, permits, and addresses. The onboarding company verifies the entity, which helps prevent fraud. Below are steps that companies have to follow during business verification:

Step1 Collect Information

Companies must collect the required documents for business verification, such as government licenses and permits to work in a particular sector. They must collect all these documents to verify the company’s identity. After collecting the documents, companies can create customer profiles to proceed to the next step.

Step2 Validate the information 

After creating a profile, companies should verify it through various checks. The documents collected by the company should be validated by attesting to security features such as borders, fonts, signatures, and textures, depending on the documents’ natures. Furthermore, the written data can be confirmed by cross-checking these records from government databases. It will ensure the data written on the papers is validated and not counterfeit or duplicated. 

Step3 screen profile 

Once the profile is validated, the company must screen it against the various watchlist sanctions such as AML, FBIs, CFT, PEPs, SIEs, or other financial crime databases. This process ensures the compnay is not involved in illicit activities. During onboarding, this also guarantees the companies that the business is valid and complies with international regulations. Screening against the criminal database prevents companies from non-compliance penalties.

Step4 Centralised Reports 

After verification, the papers submitted by the business for registration are guaranteed to be valid. The entity is not involved in illicit activities and is legitimate to onboard. However, before onboarding, companies must be transparent about the business’s ownership structure. This is done by conducting the KYC of the entity’s ultimate owners. Furthermore, they must create a centralized report of all owners and the company ownership structure. 

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