ID Verification - KYB

Why Sanctions Screening is a Vital Aspect of KYB

July 30, 2024
Table of Content

Sanctions screening is a critical component of the Know Your Business (KYB) process. It is an aspect of due diligence that organizations must perform in order to comply with anti-money laundering (AML) statutes, as well as to identify if anyone they are potentially doing business with is on a Politically Exposed Persons (PEP) list.

Effective sanctions screening helps businesses comply with international, national, and local regulations. Regulatory bodies mandate that businesses avoid engaging with sanctioned entities to prevent money laundering, terrorism financing, and other illegal activities. Failure to comply with these regulations can result in severe penalties, fines, and legal repercussions and risk reputational damage.

How to do Robust Sanctions Screening

When onboarding a potential new business client, companies must conduct thorough checks on all the Ultimate Beneficial Owners (UBOs) associated with the business. This is typically defined as those with at least a 20% ownership stake in the business. 

UBO verification usually involves collecting detailed information about the beneficial owners, including their names, dates of birth, nationalities, and the nature and extent of their ownership or control. This data is then verified against various databases, such as government registries, watchlists, and sanction lists, as well as private sources to ensure accuracy and end-to-end verification of every business stakeholder.

Knowledge about the actual individuals behind a company enables a business to make more informed decisions when it comes to sanctions compliance, thereby reducing the risk of engaging with dubious or fraudulent entities. This transparency helps protect the business and its stakeholders, including investors, partners, and customers. 

Risk Mitigation & Reputation Management

Doing business with sanctioned entities poses significant financial and operational risks. These entities are often involved in illegal activities, which can lead to financial losses, legal issues, and disrupted business operations. Sanctions screening helps mitigate these risks by identifying and preventing interactions with high-risk entities.

Furthermore, associating with sanctioned entities can severely damage a company’s reputation. Businesses strive to maintain their integrity and public trust, and being linked to entities involved in illicit activities can tarnish their image. Sanctions screening helps protect a business's reputation by ensuring it only engages with legitimate and compliant entities.

Manage PEP and Sanctions Risk with Caf

Caf’s global KYB solution allows companies to instantly identify any potential sanctions risks, including including formerly sanctioned entities, direct subsidiaries of sanctioned entities, and entities closely linked to sanctioned entities, as well as if any UBO or business owner is currently on a PEP (politically exposed person) list. 

Caf leverages a combination of the latest digital technologies and access to government, private, and proprietary databases to deliver faster, more accurate, and in-depth background checks and screenings of business entities around the globe. By automating and streamlining the KYB verification process, Caf reduces the risk of errors and omissions associated with manual reviews and frees up internal resources to focus on core business activities.

In an increasingly complex and interconnected world, managing sanctions risk becomes paramount in order to maintain regulatory compliance and reduce harm to your business. Ensure a smoother, more seamless KYB compliance with Caf, book a demo now.

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"Why Sanctions Screening is a Vital Aspect of KYB"