Guide to Business Verification in Kenya for AML Compliance - All You Need to Know

In Kenya, a country with a burgeoning digital economy, the importance of verifying business identities cannot be overstated. According to recent reports, Kenya’s economy is increasingly digital, with over 22 million internet users and a significant number of businesses operating online. However, this digital expansion comes with its own set of challenges, particularly concerning fraud and compliance. Recent findings have reported a significant rise in financial fraud cases, with Kenyan banks losing over Ksh13 billion ($121.49 million) every year to fraudsters through identity theft and loan stacking. These alarming statistics underscore the urgent need for stringent business verification processes to protect businesses and consumers alike.

This article discusses the intricacies of business verification in Kenya, offering a comprehensive guide to understanding its significance, the regulatory framework, and the processes involved. 

An Overview of the Regulatory Framework in Kenya

The Proceeds of Crime and Anti-Money Laundering Act (POCAMLA) establishes the legal framework for combating money laundering and financing of terrorism in Kenya. It mandates financial institutions to perform due diligence on their business clients to prevent illicit financial activities.

In Kenya, the framework for business verification is comprehensive, ensuring that financial institutions and other reporting entities perform thorough due diligence on their business clients. This framework aligns with global Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) standards, making it essential for businesses to comply to prevent illicit activities and ensure transparency. 

Required Information for Legal Entities

To verify the identity and legitimacy of a legal entity, organizations are generally required to collect and verify different information depending on the kind of business relationship being established. Information to be collected and verified may include: 

• Registered Business Name:
  • The official name under which the business is registered.
• Evidence of Registration or Incorporation:
  • Certified copies of the Certificate of Registration or Certificate of Incorporation.
  • Memorandum and Articles of Association or other similar documentation evidencing the legal status of the entity.
• Address Information:
  • The address of the registered office.
  • If different, the principal place of business.
• Board Resolution:
  • A certified copy of the board resolution stating the authority to open an account or transact business with the reporting institution.
  • Designation of persons with signatory authority.
• Key Personnel Information:
  • Full names, dates of birth, identity or passport numbers, and addresses of the natural persons managing, controlling, or owning the legal entity.
• Financial Statements:
  • For corporate bodies, audited financial statements for the last full year.
  • For sole traders, unaudited financial statements for the last full year.

Identifying and Verifying Beneficial Owners

To comply with AML regulations, reporting institutions must also identify and verify the identity of beneficial owners, who are the natural persons ultimately owning or controlling the entity. This process involves:

• Controlling Ownership Interest:
  • Identifying the natural person who has a controlling ownership interest in the legal entity.
• Control through Other Means:
  • If there is doubt about the person with the controlling ownership interest or if no natural person exerts control through ownership, the identity of the natural person exercising control through other means must be verified.
• Senior Managing Officials:
  • If no natural person is identified as having ownership or control, the identity of the relevant natural person holding the position of senior managing official must be verified.

Why is Business Verification Important?

Know Your Business (KYB) or Business verification in Kenya is a crucial step for any company looking to operate legally and successfully. Here's why it's so important:

a. Ensures Legal Compliance

Verifying a business confirms adherence to all regulatory requirements, reducing the risk of legal penalties and ensuring smooth operations within the legal framework. This compliance helps avoid fines, sanctions, or other legal issues that could disrupt business activities.

b. Protects Against Fraud

Business verification acts as a safeguard against fraudulent activities by confirming the legitimacy of a business. It helps detect and prevent instances of identity theft, financial fraud, and other deceptive practices, thereby protecting stakeholders from potential losses.

c. Builds Trust and Transparency

Clients, partners, and investors are more likely to trust a verified business, fostering stronger and more transparent business relationships. Verification demonstrates a commitment to integrity and reliability, enhancing the reputation and credibility of the business.

d. Enhances Risk Management

By conducting thorough due diligence, businesses can better assess and manage risks associated with new partnerships or clients. This proactive approach to risk management ensures more informed decision-making and promotes long-term stability.

e. Improves Access to Opportunities

Verified businesses are often seen as more reputable and trustworthy, making it easier to secure contracts, investments, and other business opportunities. Verification can be a competitive advantage in markets where trust and reliability are paramount.

How to Verify a Business in Kenya

Here is a step-by-step guide to help organizations verify a business in Kenya: 

Step 1: Understand Regulatory Requirements

Before beginning the verification process, familiarize yourself with the AML regulations relevant to your jurisdiction. These regulations typically include guidelines from the Central Bank of Kenya (CBK), Capital Markets Authority (CMA), and Financial Reporting Centre (FRC).

Step 2: Gather Basic Information

Collect the necessary basic information about the business entity. This includes:

• Registered Business Name
• Business Registration Number
• Type of Business Entity (e.g., corporation, partnership, sole proprietorship)
• Registered Office Address
• Principal Place of Business (if different)

Step 3: Verify Business Registration

Ensure the business is officially registered and in good standing by obtaining:

• Certificate of Registration or Incorporation
• Memorandum and Articles of Association

Check these documents with the relevant government or corporate registry to confirm their validity.

Step 4: Identify Beneficial Owners

Determine and verify the identities of the business’s beneficial owners—those who ultimately own or control the business. This involves:

• Identifying Individuals with Controlling Ownership Interests
• Verifying Their Identities Using Government-Issued Identification
• Documenting Their Ownership Percentage

Step 5: Screen Against Sanctions Lists

Check the business and its beneficial owners against relevant sanctions lists. Ensure none of the entities involved are listed, as dealing with sanctioned individuals or entities can result in severe penalties.

Step 6: Document and Maintain Records

Properly document all verification steps and maintain records as required by AML regulations. This includes:

• Verification Forms and Checklists
• Copies of Identification Documents
• Risk Assessment Reports

Keep these records for the period specified by your jurisdiction’s regulations, often ranging from 5 to 7 years.

Step 7: Implement Ongoing Monitoring

Establish a system for ongoing monitoring of the business’s activities. This includes:

• Regular Updates of Business Information
• Continuous Transaction Monitoring for Unusual Activities
• Periodic Reviews and Reassessments of Risk Levels

Implementing ongoing monitoring helps in the early detection of any suspicious activities and ensures continuous compliance.

Verifying Businesses in Kenya with Smile ID

Generally, Smile ID’s solution empowers organisations to conduct KYB tailored to their specific needs. Here’s how Smile ID’s Business Verification solution works:

Step 1: Check Business Information 

You can make a Business Verification query using only a business registration number. The results will detail the business information and any available stakeholder and UBO information.

Step 2: Verify UBOs and other Stakeholders 

Verify stakeholders from the result in step 1 against government databases or run a document verification on them using their official ID document.

Step 3: Confirm Accurate Records 

Match the results to confirm the identity of the beneficial owner matches both the business and official identity records.

Businesses can perform this via our no-code platform or API/ SDK integration. Book a free demo today to learn more.