In Part 1 of this series, we covered the basics of Know Your Business (KYB)—what it is, why it matters, and the first steps to verifying a business. But business verification isn’t a one-and-done process. Even after onboarding, companies must stay vigilant about evolving risks, fraudulent activities, and regulatory changes that could impact their business.
Imagine this scenario:
A fintech lender approves a new business for a loan after verifying its incorporation details and bank account. Everything checks out—until six months later, the company defaults on multiple loans and vanishes. Further investigation reveals that the business was a shell company created to launder money, with a web of fake transactions masking its fraudulent intent.
What went wrong?
A basic KYB check at onboarding confirmed the business existed, but ongoing monitoring and deeper risk assessment could have flagged the warning signs.
This is why KYB must go beyond initial verification—it requires continuous evaluation, risk assessment, and smart data usage to protect businesses from fraud, compliance violations, and financial losses.
In this post, we’ll explore:
- How to assess business risk beyond basic verification
- The key data sources that help confirm legitimacy
- Common KYB challenges and how to solve them
Step 1: Go beyond business verification by assessing risk
It’s not enough to verify that a business exists. The real challenge is determining whether it poses a risk to your organization.
Some businesses present higher risks based on their industry, location, ownership structure, and financial history. For example:
- A newly formed company in a high-risk jurisdiction might be a front for money laundering.
- A cryptocurrency exchange could be more susceptible to fraud than a traditional retail business.
- A business with owners tied to sanctions lists or politically exposed persons (PEPs) may raise regulatory red flags.
These factors don’t necessarily mean a business is fraudulent—but they increase the need for enhanced due diligence.
Step 2: Use multiple data sources to verify legitimacy
Business fraud has become more sophisticated, making it harder to rely on a single verification method. A business that looks legitimate in one database might show warning signs in another.
To get a complete picture, KYB programs should use multiple data sources, including:
- Government registries (IRS, Secretary of State, SEC) – To confirm business existence, EIN, incorporation details, and standing.
- Watchlists & sanctions databases (OFAC, FinCEN, EU, Interpol) – To screen businesses and beneficial owners against AML and PEP lists.
- Third-party business data providers (Middesk) – To gather insights on financial health, creditworthiness, and fraud risk.
- Adverse media checks – To flag businesses connected to fraud, regulatory violations, or financial crime.
Step 3: Solve the most common KYB challenges
Even with a strong KYB process, companies still face roadblocks when verifying certain entities. Here’s how to overcome the most common challenges:
Challenge 1: Shell companies and complex ownership structures
Some fraudulent businesses hide behind layers of corporate structures to obscure their true ownership.
✅ Solution: Require beneficial ownership disclosure and use AI-powered analytics to detect patterns linked to fraud or money laundering.
Challenge 2: Incomplete or Inconsistent Data
KYB data can be inaccurate or outdated, making it hard to verify businesses reliably.
✅ Solution: Cross-check multiple sources to fill in missing fields and automate data reconciliation for accuracy.
Challenge 3: Global KYB & Regulatory Complexities
Regulations differ by country, and verifying businesses globally requires compliance with regional laws.
✅ Solution: Adapt verification methods to regional KYB regulations and use international data providers for compliance.
Challenge 4: Manual Review Bottlenecks
Reviewing every business manually is inefficient and slows down onboarding.
✅ Solution: Automate KYB checks where possible, reserving human review for high-risk cases. AI-driven fraud detection can flag anomalies faster and reduce false positives.
By automating processes and continuously refining KYB checks, businesses can reduce risk without slowing down operations.
Take the next step in KYB
Want to build a stronger, more scalable KYB process? Download KYB for every stage of a business to get expert insights on risk assessment, compliance best practices, and strategies to protect your company from fraud.
