David Khalaf, LegitScript
As Know Your Customer (KYC) regulations become increasingly critical in the underwriting process, payment facilitators may seek to better understand high-risk merchants by collecting information separate from what is provided by the applicants themselves.
Corporate registration records offer reliable, useful data that may help to paint a more complete picture than application information alone. Knowing where to look and what to look for may lead to more effective Customer Due Diligence (CDD) or Enhanced Due Diligence (EDD) efforts.
Search near, far, and wherever they are
It’s important to know where companies are typically registered and how to access this information. The best place to start is the website of the state in which a company is registered. In the United States, corporate registration typically takes place at the state level, and virtually all Secretary of State websites provide at least limited open-source registration information for free. Fictitious business names (FBNs) are usually administered at the county or municipality level. Some professions — such as contractors, healthcare providers, and food establishments — require professional licensure at the state level. These are usually accessible online for free.
In addition to local and state searches, it may be helpful to conduct a broad search on free, open-source databases such as OpenCorporates. You may discover that a company is registered in multiple jurisdictions, and you may be able to discover if other people not mentioned in the merchant application are tied to the organization. For international companies, some countries, such as the United Kingdom, maintain corporate databases through the central government. D&B Worldbase also is a good paid resource with information about international companies that is not otherwise accessible.
Follow the “who,” not just the “what”
In addition to searching a company name, it can be useful to search corporate registration databases for the name of the person applying for a merchant account, as well as anyone who appears as an officer in the primary company or any related companies. A search of a person’s name can reveal additional organizations the person has registered, and may reveal other businesses they are actively operating (and potential liabilities). Even if these companies are no longer active, they may provide insight into a person’s past dealings. Someone who has burned through many corporate registrations may simply be an aspiring entrepreneur, but it could also indicate a higher-risk business model. Although not authoritative, the open-source database Corporation Wiki offers a helpful visualization tool to see how various companies and officers connect to a particular person. For example, see the following visualization of celebrity chef Guy Fieri:
Dig into the documents
The main page of a company’s online registration may help to confirm the basic details on a merchant application, but the documents associated with the main page may provide valuable supplemental information not visible on the main page. In particular, annual reports and founding documents such as Articles of Organization or Articles of Incorporation may include additional names and contact information that warrant further research.
For example, the inactive Florida company Happy Buddha Pain Center, LLC shows basic contact and officer information on its main corporate registration page. However, a click on its attached Articles of Organization file shows that the company was originally named Marijuana 4 Jax, LLC. The company may have changed its name for legitimate reasons, but this additional information may provide context and background.
Verify your findings with third-party directories
Many companies today direct traffic to their websites and storefronts through third-party business directories such as the Better Business Bureau, Manta, Yelp, Google Maps, and more. These listings often contain contact information that can be useful to compare against information in corporate registration records and in the merchant application. Unfamiliar addresses, phone numbers, or websites may warrant further research. Furthermore, most of these websites include customer ratings, and it may be worthwhile looking at customer feedback since high dissatisfaction rates may correlate to a higher risk of chargebacks. Complaint websites such as Ripoff Report may also contain additional contact information supplied by customers, and may offer additional (unverified) complaints.
Online merchants may be less likely to have business directory listings, but instead may drive traffic through profiles on social media. Both business and personal profiles on social media often contain a goldmine of information.
This level of research and scrutiny may not be in scope for KYC/CDD efforts of typical merchant applications. However, knowing how to use and research corporate registration records may prove to be a valuable tool for higher-risk applicants that require EDD, and may also be applicable for suspicious activity investigations. Having an internal metric for what constitutes high-risk activity may help determine the level of research warranted on an application. Third-party solutions, such as certification and merchant monitoring services, can help payment facilitators onboard high-risk merchants with confidence and ensure ongoing compliance with BRAM and GBPP requirements.