Category: Business

Business verification is the backbone of businesses that want to scale quickly while maintaining security & reputation. Having a KYB pipeline isn’t just a “nice to have”; it’s a way to mitigate risks in the world of business. When you bring a company into your network without knowing who actually owns it, chances are you’re exposing yourself to risks.

Hidden ownership means the true beneficiaries, the real people controlling the company. Ultimate beneficial owners or UBOs are hidden behind layers of shell entities, offshore accounts, or nominee directors. On paper, everything might look fine. But in practice, you could be exposing your organization to criminal liability, reputational collapse, and costly regulatory battles.

According to a 2023 Global Financial Integrity report, anonymous companies are estimated to facilitate over $1 trillion in illicit financial flows annually.

This isn’t a problem just for the regulators and regulatory bodies; it’s a risk every business that onboards other businesses has to deal with.

Common Business Onboarding Risks without Verification

Here’s a breakdown of some huge risks businesses could be exposing themselves to without verifying the UBO.

1. Money Laundering and Financial Crimes

The most common but the most serious risk is Money Laundering & Financial Crime. If you onboard a company with concealed owners, you might unknowingly help them funnel dirty money into the legitimate economy. They can hide funds obtained via illegal methods in their regular business transactions, such as invoices, contracts, and bank transfers. Once a business figures it out, it’s already too late. 

In 2020, the FinCEN Files leak revealed that global banks processed over $2 trillion in suspicious transactions, many linked to shell companies with hidden owners. Even well-known financial institutions faced billions in penalties for their involvement, intentional or not. For your business, that risk translates into:

• Multi-million-dollar fines
• Loss of banking relationships
• Revoked licenses
• Permanent public trust damage

If there’s one list you don’t want your business to be a part of, it’s the list of businesses being investigated for Money Laundering. 

2. Reputation Damage and Trust Erosion

Unlike money, reputation isn’t something that you can see flow in and out of your accounts. Loss of reputation for a business shows up later and leaves far more lasting impact than loss of funds.

When stakeholders discover your business partners with companies that are conducting illegal activities, the assumption is rarely in your favor. Clients, investors, and even your own employees may wonder what other risks you’re overlooking.

For Example, after the Panama Papers exposé in 2016, hundreds of companies lost contracts overnight simply due to their association with entities involved, even if their activities weren’t illegal.

Rebuilding trust after such an incident isn’t just PR work; it often requires restructuring teams, overhauling processes, and sometimes replacing leadership. All this happens while your revenue keeps dropping. 

3. Regulatory Non-Compliance

Regulators in the US, UK, EU, and many other jurisdictions now demand full disclosure of beneficial ownership information. Laws like the U.S. Corporate Transparency Act and the EU’s Fifth Anti-Money Laundering Directive (5AMLD) are designed to eliminate corporate anonymity.

If you onboard a client or partner without verifying their true owners, you risk:

• Heavy fines (sometimes up to 10% of annual turnover in the EU)
• License suspensions
• Increased audits and compliance costs

And once you’re on a regulator’s “watch list,” future transactions and partnerships may face extra scrutiny, slowing down deals and increasing legal fees.

4. Hidden Conflicts of Interest

Imagine signing a joint venture deal, only to later discover that the unseen majority owner of your partner company also sits on the board of your direct competitor. That’s the kind of mess hidden ownership can create.

Without transparency, you can’t spot overlapping interests that could bias decision-making, compromise contract terms, or give rivals a strategic advantage. These conflicts can spiral into lawsuits, lost market opportunities, and fractured partnerships.

5. Zero Accountability

Not knowing the UBO means pinning the responsibility for illegal activities becomes a challenge. If a hidden owner makes a decision that puts your business at harm, such as siphoning funds or violating sanctions, it can be next to impossible to hold them personally liable.

Fraudsters and companies engaging in illegal activities thrive because of this lack of accountability. If your business is already at risk, then even terminating the relationship may not make a difference. 

6. Weakened Corporate Governance

Strong corporate governance depends on knowing who’s steering the ship. Hidden ownership creates blind spots in oversight, allowing decisions to be made by people with no visible connection to the company.

This can hurt:

• Internal controls – Making fraud easier to commit and harder to detect.
• Strategic direction – As agendas are influenced by invisible stakeholders.
• Board effectiveness – Because members can’t accurately assess risks or align objectives.

A World Bank study found that companies with opaque ownership structures are more than twice as likely to engage in corrupt practices compared to those with transparent governance.

Steps Businesses Can Take to Reduce Risks?

Fortunately, there are a couple of things every business can implement to reduce the risk of fraud that comes with hidden ownership. Here’s what you need to do:

1. Enhanced Due Diligence

Enhanced Due Diligence or EDD is a step beyond your ordinary KYB checks. EDD, as the name suggests, goes deeper into the verification and requires documents that may uncover the hidden owners. 

Documents such as corporate registries, litigation databases, offshore leaks (e.g., Panama/Paradise Papers), and investigative reports to verify who’s really behind a company.

2. Demand Beneficial Ownership Disclosure

One thing that every business should make part of their KYB pipeline is requiring partners to provide verified documentation of their beneficial owners. Consider adding contractual clauses making false disclosure grounds for termination.

3. Use Technology-Driven KYC/AML Tools

AI-powered monitoring tools can flag suspicious transactions, detect anomalies, and cross-check owners against sanctions lists and politically exposed persons (PEPs). DIRO’s business verification solution can instantly flag potential issues in a document and verify the information directly from the issuing source. This eliminates the risk of fraud.

4. Collaborate Across Industries

Partner with banks, regulators, and other businesses to share intelligence on suspicious entities. The more data points you have, the harder it is for bad actors to hide.

Conclusion

Onboarding companies without knowing their true owners means you’re opening your business to unknown risk. The fallout from money laundering, regulatory violations, or reputational collapse can take years (and millions) to recover from.

Transparency isn’t just a compliance checkbox; it’s a competitive advantage. Companies that rigorously vet their partners not only avoid trouble but also signal to the market that they’re serious about integrity.

More and more businesses struggle in dealing with financial fraud. Especially with the rise of AI and sophisticated technology. Businesses that onboard or provide services to other businesses need to be more vigilant about verifying corporate identity.

Not verifying business identities properly can lead to financial fraud, data breaches, and huge struggles. Not only does this hurt both the businesses involved, but it also impacts thousands of users.

Whether you’re a bank onboarding a new client or a B2B platform evaluating a partner, Corporate Identity Verification is critical to protect against fraud, ensure compliance, and build trust.

In this guide, we’ll be breaking down corporate identity verification and everything businesses should know about it.

What Is Corporate Identity Verification?

Corporate Identity Verification, also called Corporate KYC or Know Your Business (KYB), is the process of validating the legitimacy and ownership of a business entity. During corporate KYB, businesses must verify:

• Business registration details
• Legal structure
• Ultimate Beneficial Owners (UBOs)
• Operational status
• Sanctions and PEP (Politically Exposed Persons) checks

While traditional KYC focuses on individuals, corporate KYC ensures that entities such as LLCs, corporations, and partnerships are authentic, law-abiding, and not linked to criminal activities like money laundering or terrorism financing.

Why Corporate Identity Verification Matters

There are several reasons why businesses must verify corporate identity, such as:

• Compliance with AML Laws: The first and foremost reason businesses must conduct corporate KYC is to comply with AML and KYC regulations. Every country has local regulations that require financial institutions to vet corporate clients before opening accounts or engaging in transactions.
• Risk Management: Verifying business entities helps avoid exposure to shell companies, fraud rings, or sanctioned entities. To mitigate risk continuously, businesses must keep verifying corporate identity documents at regular intervals to ensure no suspicious activity goes unnoticed. 
• Brand Reputation: Let’s assume you failed to verify corporate identity, and that led to a huge data breach. Such a data breach can lead to endless financial loss and can also result in legal liabilities and public backlash.
• Operational Integrity: Corporate identity verification helps businesses understand their counterparties and build trust. Having deep knowledge of the counterparties can also reduce the likelihood of business disruption.

Key Components of Corporate KYC

Successful corporate KYC has several factors that every business should consider:

1. Business Entity Verification

Verifying the legal entity of a business is the first and foremost part of verifying corporate identity. To verify business entity verification, businesses must verify:

• Name, registration number, incorporation certificate
• Jurisdiction of incorporation
• Business address and operational status

Verifying this information helps businesses understand whether a business entity is allowed to legally operate in a particular location or not. 

2. UBO Verification

UBO (Ultimate Beneficial Owner) verification is a key component of corporate KYB, and it is done to identify and verify individuals who ultimately own or control a company. UBO verification is essential because it helps eliminate the risks of money laundering. 

Countries that have strict KYC and AML regulations also require businesses to conduct UBO verification to reduce the risk of money laundering and terrorist financing. Here are all the factors businesses need to consider during UBO verification:

• Identify individuals with 25%+ ownership
• Validate names, DOB, and ID numbers
• Screen against watchlists and sanctions

3. Customer Due Diligence (CDD)

Customer Due Diligence or CDD is another crucial part of verifying corporate identity. The goal of CDD is to assess the level of risk a corporation or a legal entity holds. It also helps identify the business model and the typical financial activity. Moreover, if an entity poses a higher level of risk, EDD can be applied.

4. Ongoing Monitoring

Ongoing monitoring is crucial for businesses that want to maintain a secure environment for their partners and customers. Verifying corporate identity documents at regular intervals can help businesses screen for a change in ownership, sanction status, or any legal challenges. 

The way businesses implement continuous monitoring without wasting time and resources is by building a framework. The framework should rely on business verification tools, combined with manual effort.

The Evolution of Corporate KYC

The concept of corporate KYC became prominent post-9/11 and the establishment of FATF (Financial Action Task Force). However, it wasn’t until 2016 that the US FinCEN’s CDD Rule mandated identity verification of UBOs for all covered entities.

Previously, shell companies exploited regulatory loopholes to conceal illegal activities. Modern corporate KYC aims to close those gaps through structured verification processes.

As the importance of KYC became clear to regulatory bodies all across the globe, businesses began to adopt enhanced customer due diligence methods. This meant taking a step beyond the basic customer identification practices. 

The introduction of enhanced due diligence (EDD) advanced the adoption of corporate KYC as it involved a deeper investigation into the customer’s background. Corporate KYC practices now also address the issue of Politically Exposed Persons (PEPs), who generally pose a higher level of risk in terms of money laundering.

Who Needs to Perform Corporate KYC?

The goal of corporate KYC is to ensure financial institutions, government bodies, and businesses know who their clients are. As per the regulations, the user must complete KYC before getting into a working relationship with a financial institution.

Here’s a list of businesses that absolutely must conduct corporate KYC:

• Banks and credit unions
• Fintech companies
• Cryptocurrency platforms
• Investment firms

Moreover, corporate KYC practice is increasingly being adopted by several other businesses to reduce the risk of fraud. Common businesses include:

• B2B marketplaces
• SaaS companies
• E-commerce platforms
• Legal and insurance service providers

Required Documents for Corporate KYC

The exact method for Corporate KYC verification differs from country to country. There’s no one solution that would fit all the organizations. The exact method of verification depends on the regulatory entity. The central bank lays down the guidelines, but regulatory bodies can enhance those guidelines based on the geographical risk level.  

Some of the most common documents required for corporate identity verification include: 

• A certificate of incorporation that mentions the CIN (Corporate Identity Number)
• A copy of the memorandum & articles of association (AOA)
• Copy of the company PAN (Permanent Account Number) card. 
• A resolution document approved by the boards of directors for opening a bank account and designating its authorized users. 
• Identification of authorized signatories with a picture and company-attested signature cards
• List of directors, DIN (director identification number), and copy of Form 32 (if the director is different from the AOA)
• Certified copy of the business commencement certificate (only applicable to public limited companies)
• Proof of the company’s name
• Proof of the company’s principal place of business
• Mailing address of the company
• Official telephone/fax number
• Telephone bill not older than 2 months
• Tax ID or registration number
• Government register reports (when available)

These documents establish that a business exists legally and operates under proper governance. Do keep in mind that not all these documents are needed; exact requirements will vary.

Common Challenges in Corporate KYC

Like everything, corporate KYC procedures have their fair share of challenges. While the methods have become more sophisticated and easier to implement in recent years, some challenges remain:

Poor Data

All financial institutions will come across some kind of data discrepancies and inconsistencies in corporate registration records and filing history. This is a huge challenge when it comes to information verification, as financial institutions need accurate data.

False Positives

Regulated businesses have to bear a lot of cost when they’re investigating a false positive. Most of the time, these investigations are frequently unnecessary. If companies choose to avoid and not investigate false positives, they bear the risk of getting fined with huge penalties. 

Time-Consuming

Conducting checks for hundreds, if not thousands, of companies puts strain on a company in terms of time and money. The huge cost involved is always a challenge for financial institutions, especially for small-scale companies.

Continuous Monitoring

Corporate KYC has one more significant challenge: continuous monitoring. Businesses have to conduct complete KYC checks every time there’s a change in firm structure, ownership, and business interest. This again puts a strain on the institution’s operations as there’s a lot of time and money involved.

Information Overload

Collecting and verifying large volumes of data from global entities is also a major challenge when verifying corporate identity. Verifying tons of documents and data with only manual efforts can be a challenge. This is where online verification solutions come in and streamline the process. 

Regulatory Complexity

Compliance requirements are always changing, so businesses and compliance teams always have to stay on their toes. There are lots of challenges involved in keeping up with regulations. Not following the regulations can also lead to fraud and a risk of fines.

Friction in Onboarding

Another challenge in corporate identity verification is that overly lengthy verification processes can add unnecessary friction in the onboarding process. Businesses have to really strike a balance between friction and seamless onboarding.

Automating Corporate Identity Verification

Manual KYC is time-consuming and error-prone. That’s why many businesses now turn to automated KYC platforms, which offer:

• Real-time access to global registries
• Automated UBO identification
• Sanctions & PEP screening
• AML checks and audit-proof documentation
• API integration with compliance tools and CRM systems

According to PwC, automation and pKYC can reduce the compliance effort by 60-80%, enabling teams to focus on higher-value decisions.

Entity Verification vs. Company Verification

• Entity is the broader term encompassing all legal forms – LLCs, partnerships, government bodies, etc.
• A company is a subset of entities formed specifically for commercial purposes.

Verifying entities means understanding not just their structure, but also their hierarchies, ownership chains, and control mechanisms.

Business Benefits of Corporate KYC

• Fraud Prevention: Mitigates exposure to shell companies and high-risk partners
• Operational Efficiency: Automates manual checks, speeding up onboarding
• Regulatory Compliance: Avoids penalties and audits
• Customer Trust: Demonstrates diligence and integrity
• Cross-Department Use: Verified data supports sales, legal, and finance

Conclusion: KYC Is No Longer Optional

In today’s digital-first, risk-sensitive world, knowing who you’re doing business with is table stakes. Corporate KYC or entity verification is no longer just a compliance checkbox; it’s a core pillar of your company’s security, trust, and growth strategy.

By investing in the right tools and frameworks, businesses can onboard faster, stay compliant, and avoid costly surprises.

Frequently Asked Questions

Knowledge-based authentication (KBA) has been the industry standard for over 20 years as a method of identity verification. KBA has been an outdated mode of verification for a long time. This is a flawed approach to verifying identities as it uses stagnant data. The same data has been breached and accessed by thousands of users worldwide. Personal data and knowledge-based questions’ answers are readily available on the dark web.

Fraudsters have become more proficient in answering all the credit-based questions than the people who have to rely on the quizzes.

This flaw was first recognized in 2015, which led the National Institute of Standards and Technology (NIST) to limit the use of KBA in their latest version of Special Publication. The latest publication is the most widely used ID verification standard in the United States.

However, KBA is commonly used by state and local agencies to verify identities. The most common uses include motor vehicle registration, online portal access, and notarization.

KBAs are considered to be the backup for manual identity verification. But it’s still not a good enough solution, as KBA data has been breached multiple times. Personally identifiable information goes as low as $1 on the dark web.

Current Problem with KBAs

The biggest problem with KBAs is that the data is available with ease almost everywhere on the dark web. Once fraudsters have answers to questions, they’re easily able to bypass security measures and gain illegal access to user accounts. 

Fraudsters often find methods of least resistance to gain access to illegal access to systems. If businesses choose to use knowledge-based authentication to verify identities, they are only using a flawed method.

To properly identify identities and verify users with ease, businesses need to move forward from Knowledge-Based Authentication (KBA). Solutions like the DIRO document verification tool and other verification solutions can help businesses verify the identities of users, ideally.

DIRO’s document verification solution can quickly and accurately verify identities and prevent the risk of fraud while ensuring the integrity of user accounts.

Why Businesses Shouldn’t Rely on KBA

Hackers and fraudsters have exploited the breaches and data thefts to quickly bypass the login systems. Using solutions like DIRO document verification can help businesses with far more accurate verification and huge cost savings.

1. Flaws in KBA

The biggest flaw in KBA lies in its reliance on static and outdated information. Information like Social Security numbers, addresses, and personal details is easily stolen.

Hackers and fraudsters have exploited these breaches regularly to collect necessary information. Moreover, the easy availability of personal data on the dark web and social media has significantly reduced the effectiveness of KBAs.

2. NIST Non-Approval of KBA

The NIST has made KBAs a non-approved technology in their latest version of Special Publication 800-63-3. This highlights a growing acknowledgment of KBA, which highlights how ineffective the knowledge-based authentication process is.

KBA’s deprecation signifies a need for more secure and sophisticated alternatives to make sure accounts are verified properly.

3. Risks of Relying on KBA

Businesses that solely rely on KBAs are at a serious risk of hurting their business. It makes sense that state agencies use KBA for verifying the identity of users, as it’s easy to use and familiar.

With modern cybersecurity threats becoming increasingly sophisticated, businesses and governments need to use a more secure solution.

4. Adoption of Biometrics

Using biometric verification in the identity proofing process can enhance the security of the process. Biometric data is unique to each individual and cannot be easily replicated or stolen.

Technologies such as fingerprint recognition, facial recognition, or retinal recognition can provide a more robust and secure way of verifying identities.

5. Behavioral Analytics

Instead of using biometric data, businesses can use behavioral analytics data to verify if a user account has been hacked. By using a user’s behavior patterns, such as typing speed, mouse movements, or smartphone usage habits are unique to each user.

Any sudden change in the patterns of a user can be an indicator of fraud.

Final Take

Relying on Knowledge-based authentication (KBAs) for identity proofing has been flawed for a long time. Relying on data that has been breached and stolen countless times to identify a user isn’t a great idea.

By using more secure options like the DIRO document verification solution, businesses can quickly and easily identify user identities.

Businesses often overlook fraud red flags. In the long run, this leads to monetary and reputational losses. Vendor fraud has become highly prevalent across several industries. When vendor fraud happens, the culprit could be someone from your own team or someone you trusted. It could also be a fake vendor that wasn’t verified properly. 

Every business needs to make robust and reliable partnerships with vendors to thrive. Fraudsters often take advantage of this reliance on vendors to trick businesses into making wrong payments. 

Here are some of the most common types of vendor fraud, and how you can prevent them:

Common Vendor Fraud Types

1. Phony Vendors

One of the most common methods of vendor fraud is fake vendors pretending to be legit. Fake vendors try to get businesses to make payments for fake services. It can take a long time before companies uncover the fraud.

In some cases, even employees pose as fake vendors to exploit known weaknesses in payment systems. Employees can set up fake vendors, and make fake invoices to get payments in their accounts.

Common red flags to uncovering fake vendor fraud include:

• Photoshopped invoices
• Photocopied invoices
• Companies with no real-address
• Sequentially numbered invoices
• Companies with addresses of post offices

Companies should train their employees to check for red flags in invoices raised by vendors. If there’s a specific vendor that raises invoices just below the sum that needs approval from higher-ups.

2. Fake Invoices with Real Vendors

Sometimes an employee from your business and an employee from the vendor’s team can collaborate to come up with a scam. Both members of the team can collude to trick the business into making wrongful payments. 

A vendor may submit fake invoices, and an employee at the purchasing department will make payment for the amount. The payment is made to a personal account and split between the two. 

This type of fraud becomes common when the supplier and business teams are in close contact. To prevent this kind of fraud businesses must do due diligence before they hire their employees.

3. Kickbacks

If your business performs contract work, then kickbacks are another type of vendor fraud you need to be wary of. The person who approves the contracts could be receiving kickbacks from their vendors. Common red flags for this kind of fraud include:

• Fewer bids than expected/needed.
• Widely ranging bids on the same project.
• Sudden and unexplained deadline changes. 

Kickbacks also happen when you’re paying higher prices for low-quality products. Making cash payments to your employees is the hardest to detect as there’s no record of these payments in company books. But they are reflected in higher pricing from vendors. Even fraudulent vendors need to cover their costs. 

To minimize losses, companies should always look for consistent shortages, communications that happen informally between vendors and staff, and poor record keeping.

How to Effectively Identify Vendor Fraud?

The key to fighting vendor fraud is knowing where to look. If you don’t know where to look for it, you won’t be able to detect it. Here are some basic measures any company can take to prevent vendor fraud:

• Check for the vendor’s pricing structure. If the prices look too good to be true, they’re probably scams. 
• Don’t be lenient on any single invoice. Scrutinize every invoice submitted by the vendor or submitted on behalf of the vendor. If there are two same invoices with the same invoice numbers, it’s probably a fraud. 
• Most companies follow their own invoice format. If the invoice was made using Microsoft Excel, it’s a red flag.
• A vendor that doesn’t have a verifiable taxpayer identification number is most likely to be a fake vendor.
• Do vendor onboarding checks? Run Vendor KYB checks, and background checks to see if they’re legit or if they have a history of fraud.
• Any vendor with a P.O. box address is likely a fraud.

Tips for Vendor Fraud Prevention

Knowing how to look for vendor fraud is one thing, but it’s not enough to identify vendor fraud. What’s important is to prevent vendor fraud from happening. 

1. Manage Vendors Effectively

Fraudsters keep evolving their methods of conducting fraud. When you’re fighting vendors, you need to come up with an effective vendor fraud management system. 

With an ideal vendor fraud management system in place, it will become easier to manage vendor risk. Ideal strategies can significantly reduce the risk of fraud.

2. Audit Vendors Regularly

Keeping a track of vendors is essential. Even a trusted vendor can suddenly start doing fraud. Frequent vendor auditing can help you protect your business against huge financial losses caused by fraudulent schemes. 

3. Multi-Level Payment Approval Process

Vendor fraud happens the most at businesses where there are just one or two employees handling vendor invoices. 

To prevent making fraudulent payments, vendor invoices should go through multiple processes from different departments. 

4. Use Invoice Matching Technique

Invoice matching is pretty basic but it can reduce vendor fraud significantly. 

As the name suggests you have to match invoices submitted by vendors against internal records such as purchase orders, payment receipts, inspection slips, etc.

To ensure you achieve the best possible results, you have to match the invoice against multiple documents. 

5. Don’t Make a Single Employee Manager

Sometimes, several employees work with each other to commit fraud. This is why businesses go such a long time without detecting fraud. Usually, its employees in the procurement and payments department conduct these kinds of fraud. 

The best way to manage risks and prevent fraudulent vendor payments is to keep rotating employees and moving them across different departments. This can ensure that no one employee has too much power.

6. Thoroughly Verify Vendors

Vendor verification is a crucial part of the process. During vendor onboarding, you should verify the vendor’s business information. This includes vendor proof of address verification, vendor KYB checks, and vendor bank account verification.

Running through these checks simply means that you’re using vendors you can trust.