Business Verification in South Africa - A Comprehensive Guide

Ensuring the legitimacy of a business is one of the very first steps to take as an organization looking to establish a relationship. You need to ensure the legitimacy of the business to achieve compliance as well as protect your organization from becoming facilitators of money laundering, terrorist financing, and other financial crimes. Not performing this due diligence could have several consequences, including hefty fines, loss of operational license, reputation damages, and more. Beyond doubts, business verification in South Africa is nonnegotiable for all organizations looking to operate in the country. 

In this guide, we will walk you through the steps to take to ascertain a company’s legitimacy in South Africa for AML compliance and the best solution to automate the process.

What is Business Verification?

Business verification is the process of gathering and verifying business information such as - registration details, ownership structure, and beneficial owners - to confirm the legitimacy of a business from government databases. It is also referred to as Know Your Business (KYB).

The goal is to ensure that the business complies with all rules and regulations and isn't fronting for a criminal entity. This way, the organization can easily proceed to transact with the business without the fear of fraud or regulatory fines. 

Why is Business Verification Important?

Business verification is important because it helps the business achieve the following: 

1. AML/CFT Compliance

Performing business verification helps an organization achieve AML/ CFT compliance. This keeps the business operating within the legal framework of South Africa and on the good side of regulators. 

2. Prevention of Money Laundering and Financial Crimes

Proper Know Your Business (KYB) effectively prevents money laundering and financial crimes. It empowers an organization to spot criminal entities masquerading as a legitimate business before onboarding and cut them off early. This singular act protects the nation’s financial system overall. 

3. Financial Security

Conducting transactions with or for a business that is not legitimate in South Africa can easily lead to financial losses. The organization could be fined by regulators for noncompliance, lose heavy funds from fraud, lose revenue from strained business relationships due to reputational damages, and more. Overall, business verification helps the organization remain financially secure in the long run. 

4. Customer Protection

Financial institutions, for example, have the legal obligation to protect their customers from fraud. However, onboarding a business with criminal intentions can lead to a breach in their system, causing customers to lose money. KYB essentially protects the organization as well as its customers.

5. Trust and Credibility

Trust and credibility are two foundations on which business relationships are built. Transacting with illegitimate business entities can result in loss of trust and public reputation damage, causing legitimate organizations to cut ties which will affect the organization in the long run.  

Key Financial Regulations in South Africa

Some of the key financial regulations organizations should take note of in South Africa include the following:

a. General AML Laws: 

These laws vary from one organization to another based on the license and industry it operates.

b. Financial Intelligence Center (FICA) Act:

The FICA Act is the primary Anti-Money Laundering (AML) regulation in South Africa. It lays down the guidelines on customer due diligence for businesses to comply with and vest authority on the Financial Intelligence Center (FIC). 

c. Prevention and Combating of Corrupt Activities Act 12 

This strengthens the measures to prevent and combat corruption and financial crimes in the country.

Read Also: KYC Requirements for Banks in South Africa

Business Verification Challenges in South Africa

Several challenges plague the Know Your Business (KYB) or business verification process in South Africa, making it difficult for businesses to achieve compliance. These include: 

i. Identity Theft and Fraudulent Activities

Fraudulent activities have been a serious challenge for South Africa as a region in the past decade. These include money laundering, identity theft, terrorist financing, and other financial crimes which have led to millions of fines over the years. The last four years have seen a steady increase in fraud rates across Africa as indicated in our fraud report and South Africa has been a huge part of it. This stresses the need for proper business verification processes to combat these activities.

ii. Informal Economy Vulnerability

Although easily one of the largest economies in Africa, South Africa still experiences challenges in the informal sector. The informal sector employs approximately 7.8 million people and consists of unregistered businesses that pose a threat to the transparency of the nation's financial systems.   

There also the issue of unemployment has also led to a high rate of entrepreneurial ventures. However, these ventures operate within the informal economy, posing difficulties in KYB compliance.

Overall, a credible and automated business verification process can help companies and the country, by extension, adhere to compliance regulations for a safer economy. 

How do I verify a company in South Africa?

Business verification, or KYB in South Africa, involves verifying the legitimacy of a business before engaging in any form of partnership or transaction. Here is an overview of the process: 

1. Collect Key Business Information

This stage involves the identification and gathering of information about the business entity in question. Key details like the legal name(s), office address, ownership structure, shareholders, Ultimate Beneficial Owners (UBOs), and more are collected.

2. Gather and Verify Key Documents

Gathering the proper documents is the next step in verifying a company in South Africa. Beyond the information they have provided, request legal business documents like company licenses, articles of incorporation, partnership agreements, and other required documents. 

After that, proceed to verify the legitimacy of these documents. Also, conduct identity verification on the Ultimate Beneficial Owners and key stakeholders in the business. The easiest way to achieve this is to leverage a robust business verification solution. Smile ID’s Business verification solution, for example, is connected to government databases and trusted sources across Africa, allowing you to verify business entities anywhere in the continent. Book a free demo to learn more today.

3. Risk Assessment

After verifying the legitimacy of the documents provided, you need to go ahead and assess the risks the business poses based on your findings. For example, a business with a legitimate background but UBOs with a history of money laundering or financial crimes is a huge threat and could either be placed under high monitoring or completely cut off. 

Also analyzing other key factors like the business industry, geographic location, financial sources, transactional and financial histories, and more could give an idea of the level of risks they pose. 

4. AML Screening

Further AML checks like adverse media, politically exposed persons, and sanctions/ watchlists screening could be performed on key stakeholders of the business to asses their risk of money laundering and corruption. 

Smile ID’s AML check solution combines all these processes in one place for easier and more effective AML screening. Book a free demo to see how it works.

5. Ongoing Monitoring and Analysis 

Beyond collection, verification, and risk assessments, it is important that an organization continuously monitor and analyze customer activities and transactions. This is a key part of business verification for KYB compliance. A business's risk levels may change over time as it conducts more transactions and enters new territories/ partnerships. 

Recommended: How to Verify a Business in South Africa for AML Compliance

How to Check if a Company is Verified in South Africa

You can verify business registration status in South Africa via the Companies and Intellectual Property Commission (CIPC) portal. Simply follow the steps below:   

Step 1: Visit the CIPC website at https://bizportal.gov.za.

Step 2: Navigate to the CIPC Entity Search link.

Step 3: Please note that you need to have an account as you will be required to log in before conducting any search. This is to comply with the Protection of Personal Information regulations.

Step 4: After logging in, proceed to search for a specific company by entering its name or registration number.

However, this process is manual and requires that you individually provide the company and business names. For organisations onboarding lots of businesses, this is not efficient. A better option would be to automate the process using business verification software solutions. 

Achieving Business Verification in South Africa with Smile ID

Business verification in South Africa is necessary for compliance reasons and institutional credibility. By extension, it also directly impacts the country’s economy. This makes KYB key in addressing challenges like money laundering and other fraudulent practices. 

Smile ID offers a comprehensive business verification solution that empowers organizations to comply with regulatory requirements. Organizations can verify businesses, perform AML checks, and put other fraud prevention measures all automated and integrated with the existing infrastructure. 

Our solution simply follows the process below: 

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.