How to Verify a Business in South Africa for AML Compliance

The nature of digital transactions in South Africa today is such that verifying the legitimacy of a business today is not an option - it's a must. Financial institutions and organizations that operate in regulated industries need to ensure the integrity of the businesses they transact with to avoid facilitating financial crimes like money laundering and terrorist financing, among others. It’s important that they know how to verify a business in South Africa for AML compliance and fraud detection. 

An Overview of Compliance in South Africa

It's no news that there is a consolidated global effort to curtail money laundering and terrorist financing. The overhead plan is to implement and drive measures in financial systems to achieve this. International standards for combating money laundering and achieving AML compliance have been laid out by the Financial Action Task Force (FATF). However, each country and jurisdiction bears the responsibility for adopting, implementing, and enforcing these standards. 

South Africa was placed on FATF was placed on the FATF grey list on the 24th of February, 2023. This was due to the country's failure to address its anti-money laundering and counter-terrorist financing shortcomings after evaluation. The current greylisting of South Africa has heightened regulators' alertness, further stressing the need for businesses that operate in the region to satisfy regulations or face penalties.

Why is Business Verification Important?

Business verification is crucial for preventing fraud, money laundering, and other financial crimes and to satisfy compliance requirements. It is important for organizations to verify the legitimacy of the businesses they transact with as well as the stakeholders and directors of the business. This helps protect the organization and expose any malicious intentions of the business entities they transact with. 

What are the Benefits of Conducting Business Verification in South Africa?

Some of the benefits of conducting business verification include: 

• It reduces the likelihood of being involved in money laundering and other financial crimes
• It protects the business's reputation from the adverse media consequences of being involved in financial crimes
• It helps the business avoid fines from regulators
• It ensures businesses achieve compliance requirements

Which Organizations Should Perform Business Verification in South Africa?

Examples of organizations that are required to perform business verification include:

• Banks and financial institutions
• Real estate agents
• Credit and loan institutions
• Asset management companies
• Crypto exchange companies
• Fintechs, etc. 

What Information Should an Organization Verify for Business Verification Compliance?

Although the laws and regulation requirements may vary from one jurisdiction and industry to another in South Africa, general information to verify includes:

• Basic registration information (company name, address, legal status, etc.)
• Ultimate Beneficial Owners (UBOs) of the business
• Shareholding and shareholders
• Directorship
• Subsidiaries

The exact information to verify varies from one business to another. Speak to our experts to learn more about your business’s unique requirements. 

Read also: How to Perform Customer Identity Verification in South Africa

Complying with Business Verification Laws in South Africa

Business due diligence mandates that organizations verify a business's legality and also ultimate beneficial owners as opposed to just verifying whether a customer is who they claim to be (for individual due diligence). The risk associated with a company can be assessed through its UBOs. There may also be a need to conduct customer due diligence on each of these UBOs and adopt continuous monitoring if they’re found to be high risk. 

Businesses that fall under government oversight also need to conduct AML screening on these business stakeholders. This is because companies with stakeholders who fall under the PEP designation are more likely to be involved in corrupt practices, making them high risk.

It is recommended that businesses adopt an automated system for business verification due to it being more efficient, cheaper, and safer. APIs allow businesses to access, extract, and verify information against government sources and commercial registration databases. 

How to Verify a Business in South Africa for AML Compliance

Follow the steps below to verify a business using Smile ID’s solution:

Step 1: Check Business Information 

Make a Business Verification query using only a business registration number. Receive results detailing 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.

Bottom line 

It is important that organizations perform business verification in South Africa to protect against fraud and achieve AML compliance. With the right software solution, organizations can easily automate the process. Smile ID offers comprehensive business verification across Africa, allowing organizations to verify businesses and the identities of their Ultimate Beneficial Owners via APIs, SDKs, or no-code integration.

Book a free demo today to learn more.