As more payment companies expand into new markets, regulators worldwide are tightening their grip on those that fail to meet strict cross-border verification and anti-money laundering (AML) standards. International transactions are becoming more complex, and compliance lapses can result in severe consequences.
For example, in November 2023, Binance, a virtual currency exchange based in the Cayman Islands with affiliates worldwide, was fined over $900 million for violating cross-border AML regulations. The company was accused of repeatedly engaging with blocked individuals and users in sanctioned jurisdictions, including Iran.
For global payment companies of all sizes, a strong cross-border verification process is essential for ensuring compliance, reducing risk, and streamlining transaction processing.
Implementing efficient and accurate international business verification is no small task, but partnering with a global payment compliance expert like Markaaz can simplify the process through automated business verification tools and real-time cross-border transaction monitoring.
Let’s take a look at the step-by-step process for building a reliable cross-border verification framework that can help payment companies remain compliant and competitive in this highly regulated industry.
Step 1: Understand the Key Regulatory Challenges
AML and Know Your Business (KYB) regulations are critical aspects of cross-border payments compliance. Each jurisdiction has its own standards for verifying business entities, which increases complexities for payment companies that must adhere to the regulations of every region in which they operate.
For example, the European Union’s AMLD6 regulations require enhanced due diligence (EDD) for high-risk jurisdictions, while the U.S. mandates strict reporting through the Bank Secrecy Act. At the same time, high-risk countries often have weaker or less effective regulations, making them more attractive for financial crimes like money laundering.
Payment companies operating in these jurisdictions need an even stronger global business verification process to avoid inadvertently getting involved in fraud or other illegal activities, such as terrorist financing or sanctions violations.
Step 2: Leverage Global Data Sources and Technology
Effective AML compliance for payment companies starts with credible, globally recognized data. Accurate data sources help ensure that all business partners are properly verified, minimizing risks.
Automation and technology, including AI and machine learning, are also critical for meeting fintech cross-border compliance standards. These tools can quickly sort through large datasets, spot unusual activities, and adapt as new threats emerge. They are especially effective for identifying fraud in cross-border transactions, often catching red flags that traditional methods might miss.
When building a payment company verification framework, it’s important to remember that not all providers are equal. Your verification process is only as good as the data you use, and choosing a robust verification partner, such as Markaaz, can help you avoid relying on fragmented or outdated information, which can lead to delays or compliance risks.
Step 3: Conduct Enhanced Due Diligence for High-Risk Jurisdictions
High-risk jurisdictions often have weaker regulatory frameworks, increasing the potential for financial crimes like money laundering. When operating in these areas, EDD is crucial. This includes:
- Gathering additional information: Go beyond standard KYB checks by collecting details such as documentation of business activities, the source of funds, transaction types, and the structure of beneficial ownership.
- In-depth analysis: Thoroughly analyze this information to identify patterns or red flags, such as unusual transaction activities, large sums that deviate from typical behavior, or links to known suspicious individuals or entities.
- Adverse media checks: Search for negative news coverage, legal actions, or other public information that might indicate criminal activities or legal concerns.
- Enhanced monitoring: Regularly review the customer’s activities and have protocols for escalating unusual or suspicious transactions for further investigation. Real-time alerts can also help identify suspicious behavior quickly.
- Third-party due diligence: Evaluate third parties involved in the customer’s transactions, such as business partners or intermediaries, to ensure they meet compliance standards and do not pose additional risks.
- Documentation and reporting: Maintain meticulous records of every step in the EDD process, including risk assessments, collected documentation, and any suspicious activity reports (SARs) filed with authorities.
The process should also include screening clients against international sanctions lists to avoid facilitating transactions with restricted entities. Individuals with prominent political roles or affiliations, known as politically exposed persons (PEPs), may also require additional scrutiny, as they may present higher risks of bribery or corruption.
Step 4: Establish a Risk-Based Approach
A one-size-fits-all strategy for cross-border verification is often ineffective. Vulnerabilities vary, so it’s often best for payment companies to take a risk-based verification approach.
By evaluating factors such as the customer’s country of origin, the nature of their business, transaction size, and historical behavior, companies can assess the potential impact and likelihood of risks.
- Low-risk customers: These often include businesses or individuals from countries with strong regulatory frameworks and a history of legitimate activity. In this case, standard KYB checks may suffice.
- Medium-risk customers: This category may include those from regions with less stringent regulations or businesses with higher transaction volumes.
- High-risk customers: These typically involve clients from high-risk jurisdictions, industries like cryptocurrency, or entities with complex ownership structures. Such customers require a more in-depth verification process, including EDD.
Step 5: Create a Centralized Monitoring System
Continual monitoring is a critical step in managing cross-border transactions, helping ensure ongoing compliance and identifying emerging risks. A centralized monitoring system gives payment companies a single, unified view of all transactions, making it easier to spot anomalies and maintain records for regulatory audits. It also helps align compliance efforts, reducing the likelihood of discrepancies across different markets or payment channels.
The Markaaz platform enhances this process by providing instant access to compliance and risk data for 519 million global business records across more than 200 countries. Its advanced AI and ML-driven algorithms enable quick, accurate verifications in sub-seconds, accelerating onboarding and supporting rapid customer growth.
With real-time updates covering compliance, financial health, and risk indicators—including watchlists, adverse media, and PEP data—Markaaz helps companies stay ahead of emerging risks. Simplified integration, a user-friendly portal, and personalized support make it easy for cross-border payment companies to leverage insights for continuous monitoring and scalable, efficient assessments.
Step 6: Regularly Update and Review Verification Policies
Regular audits of the verification process help ensure a company’s systems remain compliant with current standards. These audits can uncover gaps or weaknesses that may have developed over time, enabling companies to address potential compliance issues before they become major challenges. This proactive approach reduces the risk of penalties and helps protect the company’s standing.
Feedback loops also allow cross-border payment companies to continually refine their verification methods based on the latest insights and regulatory updates. As payment companies expand into new markets or introduce new services, they may need to adapt their verification processes to meet evolving regulatory requirements.
Strengthen Your Compliance Strategy for Global Growth
Cross-border payment processing is a rapidly expanding industry, bringing both opportunities and challenges. As international transactions grow, so does regulatory scrutiny, making it critical for companies to establish a strong cross-border verification framework.
Adopting a risk-based verification approach and conducting enhanced due diligence in high-risk regions are key to maintaining compliance and minimizing risk. Markaaz, an industry-leading cross-border verification services provider, offers access to 519 million global business records. With real-time compliance, AI-driven insights, continuous monitoring, and seamless integrations, Markaaz delivers a secure and reliable cross-border verification solution that payment companies need.
Ready to navigate evolving compliance demands and position your business for long-term growth? Connect with our team to learn more about how Markaaz can help safeguard your global operations.
