From the darkest corners of the internet, to the people you choose to do business with, the problem seems to be the same: who are they? And how can we validate their authenticity?
For some, the validation is just an afterthought in a more extensive process, but for others, it is an all-important factor in their KYC process.
For those where identity verification is an essential part of their KYC process, identity validation is one of the first steps – collecting data about your customer.
It may seem simple, but if you are dealing with a fraudster, this first step can be decisive for how the rest of your process goes - do you lose money, or do you make money from your task?
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Identity validation refers to the process where the company confirms the customer's identity - that is, that there is an actual person behind the actions taken and the decisions made on the other side of the table. This validation is especially essential in fraud prevention.
A verification process is distinct between how the customer is an individual or actual company owner or whether it is about companies that become customers of another company. This distinction makes an outcome according to what information is to be collected.
Even in the dark, all cats are not the same – the same is true when collecting ID. Before you get to the collection itself, you must investigate whether it is the company's actual owner, an individual, or a company that wants to do business with another company. You can then take the next step and collect the required data.
To be able to validate that the individual, or the actual owner, is also a natural person, the following information is required:
Afterward, the information gets matched with official documents - such as passports.
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If we instead have a B2B situation with companies that want to do business with each other, another set of data is required:
The information must then be matched with sanction lists and pep lists.
Approved IDs in a KYC process may differ from country to country. In some countries, utility bills or proof of address are legitimate identity documents.
WANNA KNOW ABOUT THE BASICS OF KYC? READ WHAT IS KYC
In Denmark, however, the matter is different. A passport, driver's license, National Insurance Card, or national ID is accepted here instead.
An inadequate validation can cause more than a long nose and heartache. One of the most important reasons for a good validation is that it helps prevent financial crime, terrorist financing, and embezzlement - and not just in your own business because financial crime rarely ends after one attempt and often moves beyond borders.
Although there are countless reasons to ensure a good validation, we have highlighted three for the sake of overview:
When you, as a company, consistently monitor your business partners and perform consistent identity verification and report suspicious activity to the government, you help contribute to a world with less financial crime.
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Your data collection means that you potentially provide necessary data to catch those who commit crimes such as money laundering, tax evasion, or financing terrorism.
By securing the identity of those you enter financial cooperation with employees, you are at the same time fraudsters who often benefit from being able to hide behind false identities or weak credit ratings.
During the financial crisis and covid-19, the incentive for fraud was greater. According to Creditro's calculations, approximately 5% of the aid packages were paid out to companies that followed fraudulent patterns.
When the supervisory authority inspects companies subject to the Money Laundering Act, identity verification is one of the requirements.
If the companies do not meet the supervision's expectations, they will be criticized in the subsequent supervision report, which will always be available on the FSA's website.
The company is also required to post on its website. In addition to bad publicity, sanctions can also involve high fines.
Creditro's platform prepares, among other things, a recommended risk score for your clients concerning money laundering and terrorist financing. In the system, we ask your clients the right questions and ensure that the proper checks are carried out and documented.
In this way, we give you greater security against being involved in money laundering or terrorist financing.
We also ensure that only legitimate IDs can be charged and automatically check these against pep and sanction lists so that you don't have unpleasant experiences.