A payment company's guide to cross-border business verification in high-risk regions

In July 2024, CB Payments Limited (CBPL), a subsidiary of Coinbase, was fined £3.5 million by the UK's Financial Conduct Authority (FCA) for failing to implement adequate financial crime controls. Despite agreeing in October 2020 to halt onboarding high-risk customers until its compliance measures are improved, the company continued to serve over 13,400 such clients, facilitating transactions totaling approximately $226 million. This breach went unnoticed for nearly two years, highlighting critical gaps in CB Payments' controls.

This incident underscores the importance of reliable and well-implemented cross-border business verification protocols, especially for payment companies operating in high-risk jurisdictions. In these regions, regulators often heighten scrutiny due to weak enforcement, corruption, and financial crime risks. Meanwhile, businesses navigate complex, inconsistent regulations while striving to maintain operational efficiency.

Yet, the promise of untapped customer bases and substantial growth opportunities continues to draw businesses into these markets. To mitigate risks and stay compliant, companies must balance ambition with accountability by conducting comprehensive risk assessments, implementing strong compliance frameworks, and leveraging advanced technology to mitigate risks and ensure compliance in challenging environments.

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Key challenges in high-risk jurisdictions

High-risk jurisdictions present unique challenges that can test even the most thorough compliance frameworks. Understanding these obstacles is the first step toward mitigating risks and ensuring regulatory compliance.

• Regulatory disparities: Fragmented or weakly enforced regulations make compliance a moving target. For example, varying definitions of “beneficial ownership” or transaction thresholds can complicate verification processes.
• Limited data availability: Reliable customer and business data may be scarce or inaccessible, especially in regions with outdated record-keeping systems or low transparency. This can leave companies vulnerable to fraudulent activities.
• Fraud vulnerabilities: Criminals exploit inconsistencies and gaps in high-risk markets to launder money or commit financial crimes, increasing the stakes for payment companies.
• Operational costs: Implementing effective verification frameworks can be resource-intensive, requiring investment in technology, staff training, and ongoing monitoring.

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KYB strategies for complex markets

Know Your Business (KYB) is a compliance framework that verifies the legitimacy of businesses and their beneficial owners. This helps ensure organizations aren't unknowingly facilitating fraud, money laundering, or other financial crimes. Poorly executed KYB practices can result in regulatory penalties, reputational harm, or financial losses.

Staying compliant in high-risk regions requires payment companies to go beyond standard measures and adopt advanced strategies designed to address these challenges.

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Enhanced due diligence (EDD)

Conduct deeper investigations into high-risk businesses, such as identifying ultimate beneficial owners (UBOs) and reviewing their affiliations. EDD helps identify potential risks before onboarding clients.

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Automation and AI tools

Streamline verification processes with AI-driven platforms that analyze business data in real time. For example, Markaaz offers real-time access to over half a billion global business records, enabling efficient and accurate verifications.

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Dynamic risk scoring

Develop adaptive risk-scoring models that assess businesses based on factors such as location, transaction patterns, and ownership structures. This helps prioritize cases that need further investigation.

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Ongoing monitoring and rescreening

Continuously monitor clients to ensure compliance over time. Automated alerts can flag changes in a client’s status, such as sanctions or financial irregularities. This allows companies to take proactive action.

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Collaboration with third-party data providers

Partner with reliable providers like Markaaz to fill information gaps with comprehensive business and ownership data. This helps ensure accuracy even in regions where local records are unreliable.

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Audit-ready documentation

Keep detailed logs of all KYB activities, such as risk assessments, due diligence checks, and ongoing monitoring. Documentation should clearly outline decisions made for high-risk clients, with regular updates reflecting regulatory changes.

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Compliance frameworks for high-risk regions

Payment companies operating in high-risk jurisdictions need a clear plan to identify vulnerabilities, address compliance gaps, and reduce exposure to financial crime. A well-structured compliance framework provides the foundation for meeting regulations and protecting your business.

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Global guidelines

International standards, such as those set by the Financial Action Task Force (FATF), form the foundation for cross-border compliance. FATF recommends taking a risk-based approach, focusing the most attention on high-risk clients and transactions. These global standards give companies a baseline for compliance, regardless of where they operate.

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Country-specific assessments

Each jurisdiction may interpret and enforce compliance differently. This requires individual assessments to address local nuances, such as data availability, legal requirements, and corruption levels.

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Third-party services

In high-risk regions where transparency is limited, accurate data is often hard to find. Third-party solutions, like Markaaz, bridge the gap by offering real-time insights and comprehensive business records. These tools help payment companies streamline risk evaluations and make informed decisions.

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The high cost of ineffective verification

When cross-border business verification processes fall short, the consequences can ripple across an organization, affecting finances, operations, and reputation. For payment companies operating in high-risk regions, the stakes are even higher.

• Financial penalties: Noncompliance can result in hefty fines, as seen by the £3.5 million penalty imposed on CBPL. These financial hits can significantly strain resources, diverting funds away from growth and innovation to cover preventable losses.
• Operational risks: Poor verification practices or lax anti-money laundering procedures can open businesses up to fraud, leading to costly investigations and potential disruptions in business operations. The processes required to address problems after they occur drain resources and reduce efficiency.
• Reputational damage: A compliance failure can tarnish a company’s image, eroding trust with regulators, partners, and customers. Publicized enforcement actions, such as the Coinbase case, show how quickly a trusted brand can come under scrutiny.

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Staying compliant in high-risk jurisdictions with Markaaz

Operating in high-risk regions requires a proactive approach to ensure compliance and protect your company’s integrity. A strong compliance framework, effective KYB strategies, and the right tools can make all the difference.

Markaaz helps simplify compliance by providing accurate, real-time access to global business data to verify and monitor businesses as part of your KYB strategy. With these resources, payment companies can confidently address regulatory challenges, reduce exposure to financial crime, and focus on sustainable growth.

Connect with our team today to learn more about how Markaaz can support your compliance efforts.

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