Top 10 Identity Checks That Help Establish Compliance For Your Business

Identity Checks

Compliance in 2022 is all about establishing a fair stance and operating within the legal boundaries as regulated by the federal agencies. Violation of such compliance boundaries usually leads to discourse and unwarranted attention from the federal agencies.

But why?

Why should a business stay compliant?

Are there any legitimate reasons why a business must conduct comprehensive identity checks?

Do we really need due diligence?

What value do identity checks add to a healthy and functioning ecosystem?

Let’s discuss all such questions, one at a time.

But before we get started, here’s a quick overview of compliance to give you a little idea of the context.

Compliance: An Overview

What is compliance?

Compliance is nothing but a state of establishment or a legal regimen of an entity or an individual where the regulatory requirements, nature of work, objectives, and legal framework are at equilibrium with the greater frameworks of economic and social ecosystems.

In the context of business, entities have to follow certain practices in order to be accepted as “safe” or be approved by federal agencies.

Imagine this; a new local restaurant has to undergo several health inspections and follow several strict safety practices before it is approved by the health inspectors as a “safe” restaurant. And if it fails to abide by these predefined conditions, the restaurant is deemed to be “non-compliant”.

So, compliance is a qualifying state for an entity or an individual where the pre-defined qualifiers are considered as factors for compliance.

This is the most basic, fundamental mechanism of compliance. However, the use of the compliance narrative shifts with each use case.

Role Of Identity Checks In Compliance

While the narrative of compliance differs for every industry, the general establishment is that a business has to meet certain requirements for it to be qualified as “compliant”. These requirements could be practices, protocols, or a series of actions that a business has to conduct before it proceeds to its succeeding operations.

One such protocol or regulatory practice is identity verification.

Identity Verification: It is the process of verifying the identities of entities and individuals per the authorized data lists of the federal agencies. Examples of such identity verification checks are IRS TIN Matching, SSA Social Security Number verification, OFAC checks, and more.

Identity checks play a crucial role in regulatory compliance as these are tools used by business entities to verify their customers and clients.

If your business wants to onboard an independent contractor or hire someone as an employee, you will verify the identities of the individual for security and legal compliance purposes.

Similarly, businesses conduct a variety of identity checks (below) to ensure that the clients, business partners, associates, and others are compliant and verified.

The fundamental reason why businesses conduct identity checks is pretty reasonable – to prevent risk.

Given the rising trends in identity fraud and the unprecedented risks in global markets, businesses do not have any other method or practice to bank on.

So, identity verification comes to the rescue in this context and helps businesses verify millions of profiles and prevents businesses from onboarding high-risk profiles.

High-risk profiles are entities and individuals who engage in non-compliant, illegal activities, such as money laundering, terrorism financing, export of restricted arms, narcotics drug trafficking, export of mass destruction material, and so on.

Apart from preventing risk, identity verification helps businesses establish compliance.


Through identity checks

The following will discuss in detail how these 10 identity checks help businesses stay compliant.

Let’s get to it.

Quick Links

  1. TIN Matching
  2. Address Verification
  3. IRS Tax-Exempt Org. Search
  4. SOS Business Entity Search
  5. Specially Designated Nationals
  6. Foreign Sanctions Evaders List
  7. Death Master File
  8. Politically Exposed People Check
  9. Designated Foreign Terrorist Organizations
  10. European Sanctions List

TIN Matching

IRS TIN Matching is one of the most important compliance checks for businesses as it deals with the vendor or independent contractor TINs.

When businesses plan on onboarding vendors, the taxpayer identification number (TIN) and the legal name of the vendor are obtained with Form W-9. This is to verify the tax information of the vendors and check if the TIN provided by the vendor matches the real-time records of the IRS.

TIN Check or TIN Match enables businesses to verify the identities of the vendors, and onboard vendors only after completing a basic KYC process. It improves the reporting accuracy and helps prevent penalty assessments related to TIN discrepancies.

Address Verification

Address and address proof of individuals and entities is obtained by business ecosystems in the BFSI industries. These addresses are used for physical verification and communication purposes. So, it is essential for businesses to ensure that the addresses provided by the customers/clients exist in real life.

In the U.S., the USPS address data list is the most-accepted medium for address verification since it is an authorized agent of the U.S. government. The addresses obtained from the profiles are validated against the USPS records to check the accuracy and validity of the address.

This verification check enables businesses to prevent onboarding profiles that furnish invalid addresses or historic addresses.

IRS Tax-Exempt Org. Search

Some entities are exempt from IRS tax regimes and some are not. And when businesses either contribute to a cause or want to partner with non-profit organizations, verifying the organization becomes a standard protocol.

IRS tax-exempt organization search allows businesses to identify and verify if an entity is exempt from IRS taxes.

Tax-exempt organization search also prevents businesses from donating to fraudulent entities that are pretending to be nonprofits for monetary benefits.

If you skip this check and proceed to donate to a fraudulent entity or a non-tax-exempt entity, the amount you have “donated” will actually be treated as a payment, mandating you to file a 1099 form.

SOS Business Entity Search

Secretary of State (SOS) Business Entity Search is an identity check which allows you to check the legal standing status of a business in a state, along with its geographical presence.

SOS Entity search enables you to obtain the incorporation details of the entity, including but not limited to MOU, MOA, Articles of association, profiles of founding members, officers in charge, and more.

It also allows you to validate the geographical presence of a business across the U.S. What do we mean by this? It means you will be able to find both the principal and operational locations of a business across all 50 states.

This check can be observed as a basic screening process that provides great insights into the entity’s incorporation and legal background.

Specially Designated Nationals

Individuals who have been under the federal radar for engaging in non-compliant activities, such as money laundering, terrorism regimes, terror financing, drug trafficking, and other similar regimes, are sanctioned by the OFAC under specific sanction programs and tags.

The OFAC, intending to protect its foreign economic policy from misuse, sanctions individuals, entities, and groups from certain targeted foreign countries. Example: North Korea, Iran, etc

Businesses and persons within the U.S. are strictly prohibited from engaging in any kind of conduct with specially designated nationals. Disregarding these sanctions and continuing to engage with such profiles will be considered a violation of the national security policy, which would result in criminal liabilities, civil liabilities, financial penalties, and even imprisonment.

Specially Designated Nationals check enables businesses to prevent onboarding profiles that have been sanctioned by the OFAC. This check prevents certain risks such as reputational losses, civil and financial liabilities, and operational prohibitions for your business, that come with associating with sanctioned profiles.

Foreign Sanctions Evaders List

While the Specially Designated Sanctions check deals with identifying sanctioned nationals, this check deals with identifying foreign individuals and groups who have evaded the sanctions of the OFAC.

In simpler terms, these “evaders” are individuals who have disregarded the OFAC sanctions by conspiring or attempting to engage in commercial conduct with persons within the U.S.

From a layman’s point of view, these individuals have been blocked by the U.S. but they continue to fight the odds to access the U.S. financial ecosystem.

Businesses and persons within the U.S. are strictly forbidden from engaging in commercial conduct with individuals listed in this database. Attempting to engage in commercial conduct with Foreign Evaders will be considered a violation of the federal law, leading to hefty financial penalties and civil punishment and/or prison (depending on the severity of the case).

Death Master File

Did you know that there are people who claim the identities of the deceased for fraudulent access to monetary benefits? It’s true. Many residents and businesses within the U.S. have reportedly been victims of identity fraud where a perfectly innocent-looking person claimed the identities of a deceased person for fraudulent financial and information access. This happens more often than you’d like to believe.

Federal agencies advise businesses to be aware of social engineers, who work through sinister methods to gain fraudulent access to top-secret information, company assets, data, funds, and other liabilities of a business.

The best way to prevent onboarding such profiles is to screen the identities against the Death Master File, an identity data list administered by the Social Security Administration, which consists of the identities of the deceased with proof.

Politically Exposed People Check

Individuals engaged in money laundering or those who hold high-level public positions but misuse their power for fraudulent financial benefits are termed “politically exposed people”. These individuals are usually seen as high-risk profiles for their involvement in illegal monetary transactions and adverse media coverage.

Banks and other financial institutions within the BFSI industries continuously monitor the risk quotient of such individuals prior to onboarding.

If the risk quotient exceeds the maximum risk threshold of the institution, the profile will be rejected. However, if the risk is negligible or if the institution believes that the risk quotient is admissible, then such profiles may be accepted. In such a case, the profile is screened vigorously to assess the risk quotient with the highest accuracy prior to onboarding.

PEP-Check or PEP screening is risk screening, and it enables businesses to prevent risk to a large extent. The conclusion of risk assessment, analysis, and the risk threshold is at the sole discretion of the organization that wants to onboard a high-risk, PEP profile.

Foreign Account Tax Compliance Act (FATCA) Check

Terrorists, terror regimes, terror groups, entities, organizations, societies, and other related regimes are all designated as foreign terrorist organizations. Engaging in any conduct with these individuals and entities will be deemed as a threat to U.S. national security.

Businesses are mandated to conduct due diligence – a comprehensive identity verification process – to validate the identities and look for any possible leads that may increase the risk of a profile. Any connection or engagement with terror regimes is strictly forbidden and could potentially put tremendous risk on your business.

Businesses can easily identify designated terrorists and terrorist organizations with the DTFO (Designated Foreign Terrorists Organizations) check. This check enables you to verify if a seemingly harmless individual or entity that you may associate with is linked or directly engages with a terrorist organization.

Overlooking this check can potentially put your business and everyone involved in your operations under severe risk. Consequences could include but are not limited to hefty financial penalties, imprisonment, and operational restrictions.

European Sanctions List

The EU sanctions list is a comprehensive list of all the entities and individuals who have been sanctioned by the European Union. The identities listed in this list belong to those who have attempted or engaged in terror regimes, money laundering, drug trafficking, illegal arms exports, and related regimes.

The primary goal of this sanction list is to prevent the misuse of the financial ecosystem of the European Union. Businesses and individuals within the European Union are prohibited from engaging in commercial conduct with individuals and entities listed in the EU sanctions list.

The EU sanctions check, helps businesses assess and prevent risk, protect their business ecosystem from misuse, and standardize the operations to facilitate a secure and healthy financial and business ecosystem.

All the identity checks listed above contribute to reducing the risk of onboarding a non-compliant profile. Each of these checks possesses a unique risk-identifying mechanism, which enables businesses to streamline their compliance processes, improve their profile vetting processes, and stay compliant throughout.

TINVerify, a real-time identity verification infrastructure, enables thousands of businesses like you to identify, validate, and verify millions of profiles within minutes.

A federal-compliant identity verification infrastructure, TINVerify boasts customized identity checks with API support, enabling businesses to screen their customer profiles quickly and easily with real-time accuracy.


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