It is generally accepted that there are a number of risks in engaging in international trade but that these risks can be mitigated and counter-balanced with the opportunity for business growth. One of the key ways of managing risk is to conduct due diligence on the customers, suppliers, and supply chain partners that we work with to ascertain exactly who they are; this is known as Know Your Customer .
While one of the most obvious risks is potentially not getting paid, there are other perils that you need to protect your business against, including ensuring that customers are compliant with anti-money laundering, anti-corruption, and modern slavery laws.
Know Your Customer (KYC) checks are mandatory and help to protect your business from fraud, money laundering, bribery, human rights violations and other forms of corruption and crime. Even if you unwittingly became ensnared in such dealings, the financial, reputational, or even criminal cost could be significant.
Potential customers and suppliers must provide some pertinent documentation to show proof of identity, proof of address, and sometimes other information, depending on the industry. This will enable you to ascertain their integrity.
The standard method of running KYC checks is to use a due diligence service that will check the company in question against databases and source information to verify their financial standing and their compliance with international legal obligations. There are many services available on the market to choose from, but it’s really important to know what data sources they use to assess the reliability of the information they provide. This is one area that you don’t want to go through the motions with.
The burden of proof is increasingly being placed on businesses to show that their KYC checks are based on original and up to date data. You may be checking against all the right things but if the source data isn’t accurate enough, it may leave the whole process lacking.
Businesses therefore need to be able to verify the integrity of the data that they use and for this, it needs to be live data from a primary source. Relying on third party databases is becoming increasingly risky, especially in today’s climate when the landscape is changing rapidly. There is also the risk of data alteration and tampering.
Falling foul of KYC regulations not only puts your business at risk but could see fines being enforced. Global fines for KYC violations in 2018 totalled almost US$ 4 billion so this is one area of international trade that warrants your full attention.
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