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Navigating the Risks of Working with Sanctioned Individuals: 5 Crucial Insights

Navigating the Risks of Working with Sanctioned Individuals: 5 Crucial Insights

by | Oct 20, 2023 | Blog, KYC, News & Events

Navigating the Risks of Working with Sanctioned Individuals: 5 Crucial Insights

As recent state conflicts have reminded the global market, the realities of conducting international trade and business is not without its fair share of risk and necessary regulation to avoid further harm. Sanctions serve as a form of intervention and protection for both national communities (i.e. an afflicted country) as well as individuals who are at a much higher risk of being targeted by criminal actives like human trafficking, terrorist funding, and more. Reputable businesses and financial institutions know that conducting with sanctioned individuals and entities is highly ill-advisable and can result in severe legal, financial, and reputational consequences.

Below, we’ll take a closer look at the implications of working with sanctioned individuals as well as the risks associated in doing so. Read on to learn more.

Understanding Sanctions Lists

Sanctions lists, also known as restricted or denied parties lists, are lists mandated and managed by governmental bodies. Sanctions are intended to serve as a form of punitive measures against a national, entity, or individual who are believed (or are known) to have violated serious international laws and/or norms, and present a danger to others. Sanctions lists are regularly updated throughout the international community to include the names of individuals, entities, and countries that are being penalized. In order to ensure you are compliant with the most up to date list of sanctioned individuals, it is essential to make sure your CDD and EDD protocols conduct routine checks on high risk individuals (more on this below).

Sanctions target various types of activities, including trade, financial transactions, and travel, and may also incorporate restrictions such as freezing assets, travel bans, and prohibiting transactions.

Strict Legal Consequences

One of the most critical aspects to understand when dealing with sanctioned individuals or entities is the strict legal consequences of non-compliance. Failing to identify and comply with sanction mandates often result in severe legal consequences for businesses. Negative repercussions for businesses may include:

Financial Penalties: Violators may face substantial fines, which can run into millions or even billions of dollars, depending on the severity of the violation.

See: Microsoft’s 2023 $3.3 Million fine for failing to comply with export controls and sanctions laws

Asset Freezing: Sanctions can result in the freezing of assets, making them inaccessible until the sanctions are lifted.

Loss of Licenses: Businesses may lose licenses or permits necessary for their operations.

Criminal Charges: In cases where sanctions and related risks are overtly ignored in an egregious manner, individuals involved in sanctions violations may face criminal charges, leading to imprisonment.

Reputational Harm: Even if legal penalties are not imposed, sanctions violations can seriously damage a company’s reputation, especially on the global level.

It is crucial to note that, due diligence is an expectation of businesses, especially those operating at the international scale, and thus claiming ignorance is rarely accepted as a valid excuse.

The Global Scope of Sanctions

 

Sanctions are rarely, if ever limited to a singular jurisdiction due to the threat level that must be present to warrant their implementation. Sanctions are typically international in scope, with multiple countries adopting similar penalties for a consolidated approach. That means, choosing to work sanctioned entities doesn’t just affect you on a global level, it likely has global ramifications for vulnerable peoples to contend with along with putting your business at risk. As the international market continuously tries to find a way to regain some form of moderate centralization in an aggressive age of technological expansion and digital adoption, universal compliance is crucial to allowing sanctions to serve as a viable deterrent.

Though it may be difficult for businesses involved in international trade or finances to stay on top of rapidly evolving situations, it is crucial for the safety of the market as a whole that you fulfill your obligation to due diligence and avoid accidental association with dangerous players.

The Importance of Due Diligence

As mentioned above, customer due diligence (CDD) and enhanced due diligence (EDD) are an expectation of businesses that will be interacting with and doing transactions with unknown, questionable, or previously sanctioned individuals or entities. EDD in particular is essential for high risk individuals, and focuses on a much deeper level of know your customer (KYC) data points including the customers in depth background, political leanings, financial history, and more. Where basic CDD starts the process by identifying a customer’s identity, including verifying their name, date of birth, address, and other relevant information, when dealing with high value transactions or increased risk situations, EDD is a necessary.

Building a Better Path Forward

While sanctions may ultimately be considered, at least in part, a reactionary measure to criminal activity, the core intent is to prevent further harm to vulnerable peoples across the globe.

At iComply, we’re proud to partner with businesses across North America and Europe to provide comprehensive KYC, CDD, EDD and AML solutions, all designed to uphold the important objectives that drive the implementation of international sanctions. We know that navigating the ever-evolving realities and challenges of verifying digital users and staying on top of sanctions can be time-consuming and difficult for businesses to manage. Our unique, end-to-end suite of KYC + KYB software utilizes a modular platform that can be integrated into your workflow seamlessly with minimal downtime, and built-in compliance measures for 250 global jurisdictions, making compliance easier than ever.

Contact us today to learn more.

learn more

Is your AML compliance too expensive, time-consuming, or ineffective?

iComply enables financial services providers to reduce costs, risk, and complexity and improve staff capacity, effectiveness, and customer experience.

Request a demo today.

Implementing Effective AML Solutions in Law Firms
Implementing Effective AML Solutions in Law Firms

Oct 24, 2024

Anti-Money Laundering (AML) solutions are critical for law firms to prevent financial crime and ensure regulatory compliance. Implementing effective AML solutions involves strategic planning and the adoption of best practices....

Navigating KYB Compliance for Law Firms
Navigating KYB Compliance for Law Firms

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Know Your Business (KYB) compliance is essential for law firms to verify the legitimacy of their business clients, mitigate risks, and adhere to regulatory requirements. This article explores the best practices and strategies for...

Streamlining Compliance: Leveraging Enhanced Due Diligence and iComplyKYC to Safeguard Your Business

Streamlining Compliance: Leveraging Enhanced Due Diligence and iComplyKYC to Safeguard Your Business

by | Oct 2, 2023 | Blog, In The News, KYC

Streamlining Compliance: Leveraging Enhanced Due Diligence and iComplyKYC to Safeguard Your Business

Financial institutions are facing statistics that paint a bleak picture with regard to the current challenges posed by evolving fraud and related criminal practices. With digital security at the forefront of concern in 2023, knowing who you’re doing business with is essential to safeguarding your company and staying on the right side of the law. By 2025 alone, cybercrime is anticipated to cost the global economy in excess of $10.5 trillion dollars (source); as international regulators ramp up efforts to stop digital criminals in their tracks, those falling short of compliance efforts are likely to face aggressively increasing fines and legal repercussions.

When implemented properly, Enhanced Due Diligence (EDD) is a valuable line of defense against fraudsters and those wishing to use your company for illicit means like money laundering (AML), funding various trafficking markets, and more. Knowing how to implement best practices and integrate proven software into your foundation of protection is crucial for compliance and efficiency. Below, we’ll take a closer look at some of the core details involved in EDD, as well as the benefits of partnering with a software provider like iComply. Read on to learn more.

Basics in Review: What is EDD?

Enhanced Due Diligence, better known within the industry as EDD, is a more advanced form of standard customer due diligence, which aims to verify the identity of unknown individuals or entities. Where CDD may stop once basic integral information is acquired, EDD is required for customers that have the potential to be “high risk” for a wide variety of reasons. From politically exposed persons (PEPs) to customers looking to move larger sums of money regularly, those with questionable associations or previous business dealings and more, EDD requires such individuals/entities to disclose additional information in order to more finitely review risk factors and create an accurate assessment profile for future dealings.

With users and entities taking more of their business online than ever before, one of the biggest challenges facing regulatory boards and financial institutions, both of whom must be able to monitor interactions and transactions for internal and overall market security, is streamlining EDD protocols and practices. Our increasingly digital world has long since moved past the viability of pure manual review, and being able to implement trusted software like iComplyKYC is crucial for staying on top of compliance measures and ensuring you have the tools you need to onboard, evaluate and properly approach risk with ease.

When is EDD Required?

As mentioned above, EDD is required whenever a customer presents a higher risk quotient or is unable to satisfy the base, low-level risk factors with a standard data investigation. Typically speaking, the Federal Financial Institutions Councildictates that the following categories should be considered when deciding if EDD is necessary:

  • Customers and entities
  • Geographic location
  • Products and services

While not every customer or entity will trigger the need for further investigation, those from countries that rank highest on global crime indexes or who deal with products or services that are much more likely to have ties to nefarious activities or industries must be evaluated closely. Core factors that may trigger an EDD assessment include:

  • PEPs
  • Foreign customers opening accounts without maintaining residency in the company’s country of operation.
  • Companies or individuals residing in or conducting business in countries that are known financiers or supporters of terrorist activity, as per the State Sponsor of Terrorism list, and more.

EDD investigations will uncover valuable details like sources of funds or wealth (SOFs/SOWs), any existing sanctions or watchlist information, who the ultimate beneficial owners (UBOs) are, integral details regarding a company’s legal structuring, etc.

Conducting EDD with Ease

Given the sensitive and highly privileged information handled during the EDD process, it should come as no surprise that conducting such measures can be difficult to streamline without the right tools in place. The key to safety and client retention when it comes to KYC compliance and regulation is a proven suite of tools that allow you to operate with minimal hassle and peak efficiency.

iComplyKYC is designed to seamlessly integrate security measures and identity verification practices into your daily operations, with a quick setup that leaves you compliant with core mandates in over 250 jurisdictions. Our comprehensive suite of KYC products empowers you to handle client and partner onboarding confidently and to create trust in every transaction your institution handles. We understand the significance of having the latest information to stay ahead of fraud and potential issues, and our modular software makes it easy to obtain real-time data and updates on potential sanctions, police reports, and events of interest related to current or prospective clients in as little as 20 minutes. This gives you the power to make an informed decision and to protect your business when it matters most.

Schedule a demo with our team today to learn more about iComplyKYC and how our platform can be tailored to suit your specific needs and requirements.

learn more

Is your AML compliance too expensive, time-consuming, or ineffective?

iComply enables financial services providers to reduce costs, risk, and complexity and improve staff capacity, effectiveness, and customer experience.

Request a demo today.

Implementing Effective AML Solutions in Law Firms
Implementing Effective AML Solutions in Law Firms

Oct 24, 2024

Anti-Money Laundering (AML) solutions are critical for law firms to prevent financial crime and ensure regulatory compliance. Implementing effective AML solutions involves strategic planning and the adoption of best practices....

Navigating KYB Compliance for Law Firms
Navigating KYB Compliance for Law Firms

Oct 23, 2024

Know Your Business (KYB) compliance is essential for law firms to verify the legitimacy of their business clients, mitigate risks, and adhere to regulatory requirements. This article explores the best practices and strategies for...

The Importance of Choosing the Right KYC Vendor: Safeguarding Your Business in the Digital Age

The Importance of Choosing the Right KYC Vendor: Safeguarding Your Business in the Digital Age

by | Oct 2, 2023 | Blog, KYC, News & Events

The Importance of Choosing the Right KYC Vendor: Safeguarding Your Business in the Digital Age

Are you set up for success when it comes to KYC compliance and anti-AML practices? As of Q2 of 2023, an estimated 5.18 billion users have adopted online practices (source). With this rapid rise in digital adaptation comes an increased focus on identifying and rectifying the potential risks associated with illicit activities like fraud, money laundering, terrorist funding, and more. As regulatory boards pivot to avoid the costs and human suffering associated with scams and other fraudulent activity, one message becomes increasingly more clear year after year: Know Your Customer (KYC) safeguards are essential to crime prevention moving forward. Choosing the right software to back your procedures is crucial for compliance and reduces your exposure to risks that could leave you facing heavy fines and legal repercussions.

Below, we’ll take a closer look at of the importance of having streamlined KYC, CDD and AML protocols implemented, as well as the benefits of using a proven software platform like iComplyKYC. Read on to earn more!

What Are the Core Objectives of KYC Protocols

 

The core, KYC protocols are designed to eliminate ambiguity and risk associated with doing business with unknown persons and entities. KYC processes and software must work to establish a secure and trustworthy environment for businesses and institutions to engage with, and must focus on the following:

– Verifying the identity of customers and/or prospective partners

  • Evaluating and assessing the risk associated with known activities and associations of a prospective partner, as well as any ties to illicit activities (money laundering, fraud, terrorist funding, etc.).
  • Creating accurate risk profiles based on the above information in a manner that is thoroughly documented, and able to be accessed as needed.
  • Enabling routine re-assessment and maintenance of profiles in response to new information and/or for periodic safekeeping in accordance with compliance legislation.

Software that allows businesses to identify and evaluate crucial information about unknown entities accurately helps to mitigate overall risk exposure and empowers your team to establish strong relationships with the right parties. This approach not only helps you avoid headaches but also ensures regulatory compliance and lays a solid foundation for all parties involved to thrive.

What to Ask Prospective Software Providers

In order to choose the right software provider for your KYC needs, businesses should consider the following:

How Comprehensive is the ID verification process?
ID verification is the backbone that allows more advanced measures of due diligence (and enhanced due diligence) to take place when necessary. Your software platform should be able to pull from multiple, highly vetted data sources and utilize multiple approaches to provide accurate results. iComplyKYC, for example, uses highly reliable, ethically sourced data sources that are among the most trusted in the world and implements real-time verification methods, including natural language processing, to ensure highly accurate results you can trust.

What Compliance Measures are in Place?

Your chosen software must keep your operations compliant with all regional and global mandates and should be able to adapt to evolving legislation without disrupting processes (where possible). iComplyKYC is compatible with KYC mandates across 250 global jurisdictions and is designed to seamlessly integrate with your existing protocols to minimize headaches and maximize efficiency.

Are Your Solutions Scalable?

As with above, your software needs to be able to pivot in alignment with evolving mandates, but it also needs to be able to scale with your business as you grow and face different client demands. KYC ideology is meant to be a short and long-term preventive measure, and thus companies need to plan around their future goals as much as they incorporate future projections and known risks as they are uncovered by regulatory boards and enforcing agencies.

Meet iComplyKYC

iComplyKYC understands the unique needs and challenges of identity verification, as well as the difficulties faced by businesses trying to stay compliant. We believe in creating trust in every transaction and have developed a modular suite of KYC software that allows you to focus on the core operations of your business while reducing the cost of ID verification and KYC protocols by up to 80%.

As one of the most versatile, efficient, and dependable solutions available, iComply is the leading choice for KYC software and electronic identity verification in the US, Canada, and the UK.

DISCOVER HOW NOW

learn more

Is your AML compliance too expensive, time-consuming, or ineffective?

iComply enables financial services providers to reduce costs, risk, and complexity and improve staff capacity, effectiveness, and customer experience.

Request a demo today.

Implementing Effective AML Solutions in Law Firms
Implementing Effective AML Solutions in Law Firms

Oct 24, 2024

Anti-Money Laundering (AML) solutions are critical for law firms to prevent financial crime and ensure regulatory compliance. Implementing effective AML solutions involves strategic planning and the adoption of best practices....

Navigating KYB Compliance for Law Firms
Navigating KYB Compliance for Law Firms

Oct 23, 2024

Know Your Business (KYB) compliance is essential for law firms to verify the legitimacy of their business clients, mitigate risks, and adhere to regulatory requirements. This article explores the best practices and strategies for...

Streamlining KYC and KYB for Trust and Compliance

Streamlining KYC and KYB for Trust and Compliance

by | Sep 26, 2023 | Blog, KYC, News & Events

Streamlining KYC and KYB for Trust and Compliance

With eCommerce continuing to experience exponential growth since increasing over 50% to over $870 Billion over the course of the pandemic (source), financial fraud and digital criminal activity have risen in tandem, posing a significant threat to financial institutions and businesses globally. Know Your Customer (KYC), Know Your Business (KYB), as some regional jurisdictions prefer, protocols are designed to help close the many gaps present in our evolving digital economy, and to minimize the risk of your businesses becoming unknowingly complicit in criminal activity.

KYB practices help to ensure compliance with anti-fraud and money laundering measures, as well as build trust amongst your existing and prospective customers. At iComply, we know the value of putting trust in every transaction. Below, we’ll take a closer look at the benefits of streamlining your KYB/KYC measures, as well as the importance of choosing the right compliance partner for your organizational needs. Read on to learn more.

 

KYC vs. KYB, What’s the Difference?

While many may already be familiar with the standard practices involved in KYC efforts, there can often be confusion as to what differs between KYC and KYB measures. Both share the same ultimate goal of verifying and assessing core identification metrics to build trusted risk profiles, but KYB, in particular, often involves more advanced data analysis (Enhanced Due Diligence) in order to properly assess the many unique details associated with corporate entities and institutions that must meet compliance regulations.

While standard KYC and customer due diligence (CDD) may be satisfied with basic records and identity documents, KYB and related EDD protocols demand a higher level of documentation that includes core details like sources of wealth, corporate structuring, identification of the ultimate beneficial owners (UBOs), known associations and previous business dealings (as well as previous business names), etc. Where one might consider KYC to be a more “B2C” oriented form of fraud protection, KYB focuses more on “B2B” elements that stop money laundering, terrorism funding, and other illicit activities from infiltrating the market at a corporate level.

When utilized efficiently, KYB can help your business grow in the following ways:

1. Compliance

2022 saw just shy of $5 billion handed out in AML fines, and with cybercrime showing no signs of slowing down, businesses cannot afford, either ethically or financially, to remain negligent in the face of renewed threats from money launderers, traffickers, fraudsters, and others that seek to use funds for illicit methods. Staying compliant ensures that every transaction originating from and travelling through your organization is above board, and helps maintain a position of trust for consumers within the market.

 

2. Better Business Partners

Alongside trust in your customer demographic, your business will also benefit from knowing that everyone you choose to partner with is as legitimate as they claim to be. Instead of onboarding companies with excessive risks to your portfolio, you can rest easy knowing your clients are ethical and financially sound to work with. Additionally, as KYB protocols require consistent monitoring, you’ll also be able to stay on top of any evolving points of consideration, including potential sanctions, corporate restructuring that may introduce members with a higher risk profile into the fold, and avoid shell companies that serve as a front for illegal activity.

 

3. Secure and Streamlined B2B Interactions

KYB processes make it safe to do business with other businesses, even outside of your clientele. KYB helps to remove the risk of partnering with unknown entities by identifying UBOs and key shareholders, as well as relevant financial history, meaning that you can enter into partnerships confidently. When both parties know exactly who they’re working with, many of the headaches and pain points associated with interactions, and when both parties maintain a robust KYB system, finessed documentation can significantly reduce onboarding time.

KYB Implementation with iComply

At iComply, we know that streamlined KYB software is one of the best ways to remain in alignment with all compliance standards, avoid fines, and build a foundation of trust among your peers and clientele. Our modular suite of KYC, KYB, and AML products not only ensures you have everything you need to manage and maintain a wide range of jurisdictional KYB regulations and conduct risk-based assessments but also automates your customer identification and risk screening processes more intuitively than ever before.

Book a demo with our team today to learn more about iComply’s compliance solutions and discover how iComplyKYC can be customized to fit the unique risk screening needs of your organization.

DISCOVER ICOMPLY

learn more

Is your AML compliance too expensive, time-consuming, or ineffective?

iComply enables financial services providers to reduce costs, risk, and complexity and improve staff capacity, effectiveness, and customer experience.

Request a demo today.

Implementing Effective AML Solutions in Law Firms
Implementing Effective AML Solutions in Law Firms

Oct 24, 2024

Anti-Money Laundering (AML) solutions are critical for law firms to prevent financial crime and ensure regulatory compliance. Implementing effective AML solutions involves strategic planning and the adoption of best practices....

Navigating KYB Compliance for Law Firms
Navigating KYB Compliance for Law Firms

Oct 23, 2024

Know Your Business (KYB) compliance is essential for law firms to verify the legitimacy of their business clients, mitigate risks, and adhere to regulatory requirements. This article explores the best practices and strategies for...

Key Considerations for Implementing KYC Software for Your Business

Key Considerations for Implementing KYC Software for Your Business

by | Sep 26, 2023 | Blog, KYC, News & Events, Uncategorized

Key Considerations for Implementing KYC Software for Your Business

With businesses facing the ongoing challenge of operating in a digital landscape that welcomes an increasing amount of users (source) each year, the need for robust Know Your Customer (KYC) processes has become integral for security and crime prevention. The Financial Industry Regulatory Authority (FINRA) has identified cybercrime as one of the greatest global risk factors for criminal activity in 2023 (source), and businesses can expect evolving mandates to expand the current regulatory demands faced by banks, financial, legal, and other related institutions.

Knowing how to choose the right KYC software for your specific needs is integral when it comes to streamlining your operations as well as staying compliant with all jurisdictional requirements. Below, we’ll take a closer look at some of the key factors to consider when viewing and implementing prospective KYC software, as well as the benefits of partnering with iComply. Read on to learn more!

Compliance is Essential

Know Your Customer protocols are more than just a box that needs to be checked to avoid fines (though this is certainly integral to their implementation). KYC processes and legislation are required to combat threats posed by a wide variety of criminal activities, including money laundering (AML), counter-terrorist funding (CTF), fraudulent activity, and the use of money for illicit means, including the drug and human trafficking trades. While KYC mandates may present inconveniences to businesses in terms of the need for altered and more secure operations, they are designed to prevent the very real, harsh realities faced by victims of crime all across the globe.

In order to make sure you find the best fit for your industry, as well as your jurisdiction, you must ensure that you are aware of all existing requirements and that your chosen solution performs as necessary to remain compliant in the fight against financial crime.

Did you know? iComply’s KYC solutions seamlessly integrate mandates from 250 jurisdictions and counting!

User Experience

In addition to being fully compliant with all relevant measures, your chosen KYC software should be easy to use for any individuals and/or departments involved. Your KYC platform should provide a user-friendly interface for both customers and your internal teams and guide them through every step of the verification process with clear instructions and a streamlined approach. Once data is submitted, it is essential that the software is able to accurately analyze and report core data points and provide comprehensive reporting and analytics features for your team to review as needed.


Security and Data Protection

KYC protocols call for the safe and efficient handling of sensitive customer information, including personal and financial data. Data security, therefore, must be a top priority when selecting a KYC software provider. Look for solutions that employ robust encryption protocols, secure storage systems, and regular security audits. As with the first point, you must ensure that your software is compliant with all relevant privacy mandates, and adheres to all related regulations.

Flexibility and Customization

Every business has distinct needs when it comes to fulfilling KYC protocols. Your chosen software should be flexible and allow you to customize it as needed for your specific industry. iComply’s modular suite of solutions, for example, makes it easy to stay compliant and integrate all necessary details but also gives you the opportunity to enhance your current practices with the full power of all elements being configured to your exact needs.

Why Partner with iComply?

iComplyKYC takes pride in revolutionizing the field of compliance with the help of our industry-leading KYC and due diligence solutions. Our comprehensive platform leverages edge computing, empowering users to process their sensitive data directly on their own devices, eliminating the risks associated with storing data in the cloud or relying on unverified third-party vendors. iComply’s modular suite of programs keeps you compliant with regulations from almost 250 jurisdictions worldwide, enabling your company to significantly reduce overhead costs by up to 80% in KYC operations.

Whether you’re seeking to streamline your hiring process, evaluate your existing customer database, or establish a strong operational foundation for the future, iComplyKYC provides an unrivalled level of safety and security. Our intelligent and customizable platform can be effortlessly set up within minutes and takes a streamlined approach to make it as easy as possible to screen for risks like AML, conduct Enhanced Due Diligence and implement ongoing monitoring, all within a single platform.

Book a demo with our team today to learn more about iComplyKYC and how our platform can be used for your specific needs and applications.

learn more

Is your AML compliance too expensive, time-consuming, or ineffective?

iComply enables financial services providers to reduce costs, risk, and complexity and improve staff capacity, effectiveness, and customer experience.

Request a demo today.

Implementing Effective AML Solutions in Law Firms
Implementing Effective AML Solutions in Law Firms

Oct 24, 2024

Anti-Money Laundering (AML) solutions are critical for law firms to prevent financial crime and ensure regulatory compliance. Implementing effective AML solutions involves strategic planning and the adoption of best practices....

Navigating KYB Compliance for Law Firms
Navigating KYB Compliance for Law Firms

Oct 23, 2024

Know Your Business (KYB) compliance is essential for law firms to verify the legitimacy of their business clients, mitigate risks, and adhere to regulatory requirements. This article explores the best practices and strategies for...

Ensuring KYC Compliance: Best Practices for the Legal Industry

Ensuring KYC Compliance: Best Practices for the Legal Industry

by | Sep 20, 2023 | Blog, KYC, News & Events

Ensuring KYC Compliance: Best Practices for the Legal Industry

When we think of Know Your Customer (KYC) and AML protocols, most people tend to associate the terms (and practice) with businesses involved in the financial sector, and for good reason. Banks, digital vendors, and other forms of financial institutions are beholden to strict international regulations in order to protect against money laundering (AML), counter-terrorist financing (CTF), fraud, and other illicit activities. While financial institutions may be one of the most visible industries that utilize KYC protocols, multiple other sectors handle sensitive information that leaves clients and the public vulnerable to attack without the proper measures in place.

The legal industry is a sector that demands confidentiality and security, with due diligence (CDD and EDD) becoming essential to the protection of all involved parties. Legal enterprises face unique challenges where KYC is concerned, and with major firms running the risk of interacting with sanctioned individuals, politically exposed persons (PEPs), and other risk-prone customer profiles, knowing who you’re partnering with is crucial to preventing criminal activity within in, or through the use of, your organization.

Below, we’ll take a closer look at some of the specific details businesses in the legal industry need to stay on top of to maintain KYC best practices, mitigate risk, and maintain the integrity of their operations.

Understanding Due Diligence

Due diligence (also known as CDD or EDD) refers to processes and checks in place that help businesses and institutionsconfirm the identity of and accurately assess the related risk associated with a specific individual or organization. For law firms, in particular, due diligence is vital when it comes to identifying potential conflicts of interest, reputational risks, financial viability, problematic associations (or sanctions), unethical practices, and more.

How KYC Aids in CDD For Law Firms

KYC is a critical aspect of due diligence for law firms. KYC incorporates multiple processes/procedures designed to verify the identity and assess the suitability of clients before initiating a business relationship. KYC regulations vary across jurisdictions, but it is a near-universal standard that adequate procedures must involve collecting and verifying core information like identity documents, proof of address (business and/or personal), and funding sources. Steps involved in conducting KYC generally entail the following:

Identification and Verification

The first step to accomplish the above goals is to obtain accurate identification information from clients. This entails collecting documents like full legal name(s), DOB, nationality, passport or valid government identification cards, and other related documents that comply with relevant jurisdiction-based regulations. Once information is collected, law firms may request additional information as needed to conduct Enhanced Due Diligence (EDD) and then will conduct verification to ensure all data is authentic and reliable in order to empower a trustworthy relationship moving forward.

Source of Funding

Law firms must be able to identify the source of their client’s funds to help prevent money laundering or other financial crimes. This also helps to protect against dangerous associations and ensures non-problematic transactions going forward. Clients may be asked to provide bank statements, tax returns, or other relevant financial documents. Law firms must also assess their clients’ overall wealth and financial background, including investments, activities, and transaction volume.

Risk Assessment

Once an entity or individual’s identity and funding have been verified, law firms (and other enterprises subject to KYC mandates) conduct a risk assessment to evaluate any potential hazards to conducting business with a specific client or the risk inherent with a specific transaction. Such assessments consider a wide variety of factors, including the client’s industry, geographical location, business reputation, political exposure, and any previous legal issues.

Clients that are determined to be high risk may require more extensive investigations (via EDD or other measures) and ongoing monitoring to ensure compliance with anti-money laundering (AML) and counter-terrorism financing (CTF) regulations.

Ongoing Monitoring

Law firms, just like any other business, must be aware that KYC is an ongoing obligation to maintain efficacy. Criminal activity is rarely a “one-time” risk, and thus those utilizing verification and risk assessment protocols must commit to the routine monitoring of clients to identify any suspicious activities or changes in the client’s circumstances. Monitoring includes reviewing client information, transaction patterns, and conducting periodic reviews of client relationships. In case of any red flags or anomalies, law firms are responsible for reporting them to the relevant authorities.

Discover the iComply Advantage Today

Knowing that you have access to trusted, automated verification and security protocols is essential for legal firms and other industries governed by KYC mandates. iComply’s suite of innovative, modular-based KYC programs is designed to simplify compliance and adapt seamlessly to evolving legislation, meaning you can easily stay on top of conducting due diligence. Our software leverages cutting-edge AI and blockchain technology to ensure complete regulatory compliance across 245 jurisdictions worldwide and allows you to effortlessly construct fully automated workflows tailored to unique client types, jurisdictional requirements, and more, all with minimal disruption.

Empower your organization with a comprehensive 360º view of KYC data and set your legal firm up for success with iComply’s digital identity verification solutions today!

Ready to take the next step?

Contact us today to explore iComply’s comprehensive, modular compliance solutions or to book a demo with one of our experienced product specialists.

learn more

Is your AML compliance too expensive, time-consuming, or ineffective?

iComply enables financial services providers to reduce costs, risk, and complexity and improve staff capacity, effectiveness, and customer experience.

Request a demo today.

Implementing Effective AML Solutions in Law Firms
Implementing Effective AML Solutions in Law Firms

Oct 24, 2024

Anti-Money Laundering (AML) solutions are critical for law firms to prevent financial crime and ensure regulatory compliance. Implementing effective AML solutions involves strategic planning and the adoption of best practices....

Navigating KYB Compliance for Law Firms
Navigating KYB Compliance for Law Firms

Oct 23, 2024

Know Your Business (KYB) compliance is essential for law firms to verify the legitimacy of their business clients, mitigate risks, and adhere to regulatory requirements. This article explores the best practices and strategies for...