How to verify businesses and merchants (USA)

By AiPrise
29, Aug 2023
5 min read

How to verify businesses and merchants (USA)

Verifying businesses and merchants is not just a regulatory compliance requirement but also a good risk mitigation strategy for many industries. This is even more true in the United States, where laws and regulations require businesses to have proper verification procedures in place before offering their services. For example, the Financial Action Task Force (FATF) has issued recommendations that require financial institutions to conduct KYB checks on their customers.

When a company conducts thorough business verification, it is demonstrating to its customers and partners that they are serious about protecting their interests. This can help build trust and confidence over long term. Validating businesses can also help you avoid fraudsters as they often create fake businesses to launder money or commit other crimes.

Basics of business verification

Onboarding a merchant or business online can be long and tedious therefor eit is important that you breakdown the process into smaller sections and let the customer know about the information required beforehand. It can be frustrating to not have a document and go over the entire onboarding flow again. Depending on state and level of risk your business can undertake, following information is must in validating a business:

  • Registration information
  • Address of the business
  • Tax Id of the business (EIN number)
  • Type of the business (NAICS or SIC code)
  • Article of incorporation, business certificates, business agreements
  • Beneficial ownership information

Corporate Transparency Act of the US states: Effective January 1, 2024, virtually, every legal entity incorporated, organized or registered to do business in a state must disclose information relating to its owners, officers and controlling persons with the FinCEN. Beneficial ownership or UBO information is going to become a more critical as the United States government goes after money launderers.

How to verify a business

Ensuring a company is registered correctly is an essential part of any organization's due diligence. To do this, it’s important to check the business name, address, and contact details with state registries (Secretary of States). Oft times, the registry information is not up to date, so sources like public databases, credit bureaus and even Google searches help a lot.

Additionally, organizations should ask for  merchant credentials like Tax ID Number (TIN) and Employer Identification Number (EIN). It's also wise to do a TIN Matching with the federal databases.

Proof of address like utility bills, rental agreements or leasing agreements must be collected and cross verified. If registered in multiple states, collecting at least 2 addresses is recommended.

Document proofs of Article of Incorporation and ownership information should also be collected and kept on file.

Run AML, PEP, OFAC and other sanctions check on not the company but also all UBOs is an important part of due diligence.  

It can be time-consuming trying to manually verify a company's registration status. For this reason, companies may want to consider using third-party services like AiPrise that provide automated verification of merchants quickly and accurately. These services can automate collection of documents and automate business verification workflows – reducing potential errors associated with manual processes while saving time. Using these tools helps protect companies from fraud or other illegal activities associated with doing business with unregistered entities or individuals.

Beneficial ownership (UBO) information

Verifying beneficial ownership is a critical step for businesses to take when engaging with customers and merchants. By obtaining UBO information, companies can ensure that they are doing business with legitimate entities. Companies can use documents such as birth certificates, driver's licenses, passport copies, utility bills, bank statements and incorporation documents or other official government-issued documentation to gather this information.

Fraud detection

Fraudulent activities pose a significant threat to businesses and merchants in the United States, which is why it’s essential to have a process for verifying customers and merchants. This verification process can help detect fraudulent activity before it occurs and protect businesses from potentially damaging losses.

One of the most effective ways to verify businesses is by using website, address, email, and phone number information. This data can be used to quickly identify any suspicious activity or potential risks associated with a particular customer or merchant. For example, if an email address does not match the name of the company or contains spelling mistakes, this could be a red flag that suggests fraud may be at play. Additionally, real-time checks against watchlists and sanctions lists can help organizations quickly identify risky transactions.

To further ensure accuracy when verifying businesses and merchants, multiple data sources should be used. This includes government databases such as the IRS Business Master Files (BMF) as well as third-party reports from reputable agencies like Dun & Bradstreet or Experian. Public records such as court decisions or business filings are also helpful when verifying businesses.

How can AiPrise help

The rise of digital transformation has led to a need for faster and more efficient verification processes. AiPrise offers a comprehensive suite of verification solutions tailored to meet these modern needs. Our automated workflows helps organizations identify potential risks associated with customers and merchants quickly and accurately, ensuring compliance with KYC/AML regulations.

AiPrise's solutions are designed to help businesses complete all necessary checks before onboarding new customers. We helps businesses save time and money while also providing a better experience for customers.

In addition, AiPrise can provide beneficial ownership (UBO) information on companies in order to protect them from risk exposure or fraudulent activities. Our solutions use multiple data sources such as government databases and public records to ensure accuracy when verifying businesses and merchants. This provides businesses with the assurance that all necessary checks are completed before engaging with customers or merchants, helping them stay compliant with KYC/AML requirements.

So, if you're looking for ways to verify your business or merchant status, don't forget to book your demo with us at AiPrise today!