Identity verification solutions are well-known in regulatory compliance environments, particularly for Know Your Customer (KYC) programs supporting Anti-Money Laundering (AML) efforts. But the threat of identity fraud touches many aspects of our modern lives, from bank account opening and securing medical records to online reputations and career prospects. 

Unfortunately, rapidly advancing technology is driving the perception of identity mistrust from a “compliance issue” to an everyday threat. One of the major propellants for this technological shift is the rise of AI-generated deep fakes, making it easier for people with ill intent to mimic real people, create fake accounts or manipulate authentication checks to break into existing accounts. 

Art, acting, and music are examples of professions that are being profoundly affected by AI-based deepfakes. Clara Alex notes in her article, Kill the DJ, “Endless AI covers on YouTube and AI-generated scam ads with celebrities touting things they’d never tout are just a few cases to name. But the good news is that the industry, as well as content hosting platforms and social media are at least trying to fight it.”

As the article indicates, that fight involves identity verification becoming a mainstream phenomenon – with positive far-reaching implications. For example, cultural icons like Taylor Swift and Lady Gaga – as well as industry giants like Live Nation and Spotify – pre-registered for ICANN-accredited .MUSIC domains, paying a one-time $1.99 identity verification fee. 

The .MUSIC platform onboarded Shufti Pro to verify its entire community before getting them onboard. By ensuring that every .MUSIC domain is owned by the creator or brand who claims to own it. Shufti Pro is envisioned to create a safe, secure, and transparent music ecosystem where everyone can easily determine who is sharing information or content. “This collaboration is a critical development for safeguarding the music community’s digital identity,” says .MUSIC Founder and CEO Constantine Roussos, as noted in a Music Connection article.

The same principles that safeguard musicians apply to any business that creates consumer accounts. Confidence in identity is foundational, whether ensuring trust between buyers or sellers in an online auction; verifying ownership of social media accounts and associated statements and videos from that account; or protecting financial assets from theft or money laundering. For a business to thrive, it must break free of identity mistrust and focus on its most important assets. 

Identity verification services are crucial to mitigate deep fakes and ensure that businesses and consumers can thrive in an environment of greater trust. At Shufti Pro, we’re excited to support .MUSIC with our state-of-the-art identity verification solutions. Customers and businesses will have the freedom to thrive because identity verification is not just about compliance anymore. 

Since the dawn of the internet in the 90s, we’ve witnessed multiple phases of digital revolution. The Covid-19 pandemic also served as a huge catalyst in propelling businesses into a digitally-driven world which continues to evolve. While this has elevated the experience of consumers and businesses, this has also given way to more advanced technology that continues to fuel increasing fraud rates – so as your business’s technological capabilities have grown, so have the tools and capabilities for fraudsters.

2023 was an explosive year for the fraud landscape, we witnessed common forms of fraud increase while being accompanied with the emergence of new fraud techniques, such as those powered by generative AI.

Decoding the 2023 Fraud Landscape | Analyzing Shufti Pro’s Millions of Verifications

The sophistication and intricacy of fraudulent activities perpetrated by malicious actors continued to burgeon throughout 2023. Unfortunately, fraud shows no signs of decelerating as we continue to progress further into 2024. While many forms of familiar fraud were also experienced in preceding years, there are some notable developments that require immediate attention from organizations, affecting both identity verification [IDV] and anti-money laundering [AML] processes. These factors will force organizations operating across all industries to combat existing threats in tandem with the emergence of new fraud trends.

Drawing insights from our comprehensive analysis, which thwarted over 1.3 million fraudulent verification attempts in 2023, a few pertinent observations surfaced:

• 2024 forecasts indicate a surge in fraud across most sectors, with a heavy target anticipated on crowdfunding and investment platforms, alongside payment and exchange sectors.
• Re-emergence of perennial adversaries is imminent in 2024. Businesses will be required to face persistent challenges associated with common attacks, such as phishing attempts, impersonations, and chargeback fraud.

The rapid advancement of fraud technologies, from generative AI ( such as deepfakes) to synthetic identities, poses complex security challenges. This has necessitated a recalibration of IDV strategies and solutions to counteract such evolving threats efficiently.

Looking to 2024 and coming years, several technological facets require attention:

Digitization and Anonymity

In an interconnected digital landscape, criminals often feel they can operate with virtual impunity and are exempt from legal ramifications due to a complete lack of physical traces and geographical limitations.

AI & Machine Learning

The fusion of artificial intelligence (AI) and machine learning (ML) has served to amplify the realism of deepfakes, counterfeit documents, and synthetic identities. This has essentially undermined conventional detection mechanisms, enabling fraudsters to successfully navigate and bypass outdated IDV solutions.

Generative AI

Leveraging its augmentative capabilities, enables fraudsters to orchestrate sophisticated identity fraud schemes – fabricating identities from scratch as opposed to merely tampering and editing stolen or counterfeit documents.

These factors merely represent the surface of multifaceted challenges that confront fraud prevention professionals across all industries. Businesses are being compelled to take on a pre-emptive and adaptive approach to successfully safeguard consumers and customers from constantly developing fraud threats.

This narrative serves as part one of Shufti Pro’s three-part blog series, where we’ll dive deeper into recent industry trends, upcoming challenges, and imperative measures to fortify organizations against fraud. Join us in our upcoming discussion as we unravel further layers of the 2023 fraud paradigm.

Identity verification is crucial in today’s ever-evolving digital landscape as it helps prevent identity fraud, reduces financial crime, and maintains regulatory compliance across multiple sectors, ultimately contributing to a safer digital experience for users and companies. With the advent of advanced automation technology and machine learning algorithms, identity verification has benefited drastically, and identities can now be verified quickly and accurately. AI-driven identity verification systems are more secure, cost-effective, and reliable than traditional manual methods. 

 A significant advancement in the Identity Verification (IDV) sector is that of video KYC (VKYC), which allows companies to verify passive and live video outputs obtained from potential customers and clients. The global video KYC market is experiencing significant growth, with a projected market size of $499.57 million in 2027 and a Compound Annual Growth Rate (CAGR) of 15.3%. Major tech giants globally are moving towards live VKYC and other verification mechanisms, which are more secure and efficient ways to verify identities than traditional IDV methods and are expected to grow further in the coming years. 

What is VKYC? The Workflow and Types

Video KYC (VKYC) is a method of verifying the identity of an individual or entity by leveraging video capabilities. Primarily, this process leverages the power of AI-based recognition techniques to determine whether an entity is real, ultimately determining its extent of risk. This process can be carried out on a pre-recorded video and on a live video call, where a KYC expert conducts a formal verification check on the individual. However, automated VKYC checks are now more dominant as they are cost-effective, time-efficient, and drastically more accurate than traditional KYC checks. 

• Manual KYC Video Check 

A KYC interview involves either analyzing a pre-recorded video that the user in question is assigned from the business or conducting a live interview with the individual using a video call platform. This process involves a KYC expert determining whether to onboard an individual by efficiently verifying their identity. The KYC expert subjects the individual to several well-positioned questions and prompts them to perform specific actions, such as displaying their legal document. The primary purpose of these tasks is to perform a liveness detection test on the individual, which not only verifies their legal status but also ensures that the business is not dealing with a deepfake or a fabricated identity that may be used to perpetrate crimes of grave extent. 

VKYC firewalls are often implemented to streamline the onboarding process or protect access to sensitive parts of a business. A user is presented with a prompt that requires them to perform specific actions that are put in place to verify all KYC aspects effectively. Once the user submits their video, it undergoes a meticulous review by KYC experts to ensure the accuracy of the information provided. If the review is successful, the user is granted access to the system. However, if the review fails, the user is denied access to the system.

• Automated VKYC Check 

By leveraging technologies such as automation, machine learning, and biometric facial recognition, businesses can automate their video verification processes and achieve better security with improved accuracy. Companies can integrate such video call KYC services using a robust API into their onboarding processes or checkpoints that require validation before granting access. In a standard case, a user is prompted to record a video while performing specific actions, such as displaying legal documents and performing liveness detection features, verified on the spot to grant access. 

Automated KYC checks can monitor the whole login and document upload processes or specific sections out of the segment, which is then used to verify the user. An automated VKYC check is better than a live check, as it does not require a manual check from the business end and saves significant time. An automated video capture doesn’t require a live KYC agent, offering a better user experience and making it much easier to scale with a minor team and fewer resources. These solutions have an automated workflow and flag suspicious behaviors instantly by verifying users in real time, which creates a more secure and efficient verification process. Additionally, automated VKYC checks are more secure as users can submit documents securely, and the risk of fraudulent activity is much lower.

VKYC in the Finance Sector: Advantages and Considerations 

Video KYC for banks provides exhaustive verification processes ranging from biometric facial authentication for liveness detection to OCR for robust document authentication, which allows companies to verify users in real-time and build a more secure environment. Businesses in the financial sector require efficient verification as they are always at an increased threat of cybercrime and fraud because they deal in high-stakes transactions and possess valuable data that can be utilized to commit crimes of a more grave nature. Cybercriminals specifically target businesses in this sector, as they have an opportunity to get greater returns on their pre-planned strategies of fraud and crime. 

Video KYC banks can utilize identity verification to help prevent identity theft and money laundering. The primary application of VKYC for business in the finance sector is during the onboarding process and to monitor users involved in high-volume transactions. It can also help to reduce the risk of cyber-attacks and ensure the safety of customer data.

• Faster Onboarding 

Financial organizations such as banks and fintech institutes can leverage the video KYC procedure to verify and onboard users hassle-free and effectively. A typical onboarding process may take days or weeks as users need to verify documents manually, whereas a VKYC process can verify users within seconds and create a more streamlined onboarding process for improved productivity. 

• Improved Risk Management

VKYC systems can help businesses leverage better risk assessment and management as they verify users in real time with improved accuracy. By implementing a robust VKYC, companies can categorize high or low-risk entities, allowing streamlined decision-making when onboarding customers and providing them with the appropriate access or services. Risk scoring can aid in informed decision-making and enable companies to have a holistic overview of how 

• User Convenience 

VKYC provides a more convenient user experience as it allows companies to automate the Know Your Customer (KYC) process and create flexibility and accessibility for users. Users can verify their identity and legal status from the comfort of their homes without needing a physical presence or physical document collection, which can be very time-consuming and financially hefty. 

In the finance sector, VKYC, which stands for Video Know Your Customer, has emerged as a powerful tool that provides companies with enhanced data security and enables them to comply with global KYC regulations, thereby creating a safer and more secure business ecosystem. Through the VKYC process, user data is safeguarded from identity thieves, and their finances are protected against the threat of scammers and cybercriminals. However, it is essential to have a robust technological infrastructure to effectively complement the VKYC process.

Video KYC with Shufti Pro’s Award-Winning IDV 

Shufti Pro’s robust suite of identity verification solutions provides companies with a comprehensive video KYC verification that verifies entries effectively while adhering to global KYC requirements. With effective real-time verification, our solutions ensure that your business stays safe from the ever-evolving threat of cybercriminals. Shufti Pro offers three VKYC procedures 

• A local KYC expert with a native language for a customized experience.
• Their own KYC experts for the verification process. 
• Automated AI-based option to perform verification without hiring KYC experts

Still unsure about how VKYC complements the overall verification process and improves accuracy?

As technologies like artificial intelligence and machine learning have advanced, they have significantly aided businesses in creating accurate workflows and efficient data processing, resulting in better outcomes. However, technological advancements have also provided cybercriminals with more sophisticated mechanisms to carry out fraudulent activities. Fraudsters can use stolen information to pose as legitimate entities, deceiving business owners and committing criminal acts; identity fraud has become a significant threat companies face in our complex digital landscape. 

The highest number of identity theft cases reported to the FTC in 2022 were related to credit card fraud, with over 440,000 incidents, as per the “U.S. News & World Report Identity Theft Survey 2023”. In the first half of 2023, 560,000 identity theft cases were reported in the United States, an alarming figure that poses significant consequences for individuals and organizations alike. Of all the states, Washington, D.C., Nevada, Georgia, Florida, and Delaware had the highest rates of reported identity theft.

A significant number of the reported cases involved document fraud, including document fabrication and solicitation These cases can have a devastating financial and psychological impact on victims and can have long-term consequences for organizations in terms of reputation and customer trust. Therefore, taking proactive measures to protect oneself and organizations from identity theft is essential.

What is Document Forgery: The Common Types 

Identity document forgery is a serious crime that can have severe consequences and raise regulatory issues for businesses. By creating or altering a document, criminals misrepresent governmental/legal facts and deceive businesses for personal gain. It is now crucial for companies to be aware of document forgery and utilize robust forensic document analysis solutions, as criminals can not only create a fake document from scratch but also alter an existing document and manipulate it for their gain. 

Document forgery is directly related to identity theft, as cybercriminals require data from legitimate sources to fabricate a document successfully. A criminal can infiltrate various businesses and steal identity data or use a phishing attack to extract identity data from an individual, which can then be used to create a fake identity. The stolen data is primarily used to create bogus bank statements, passports, and other legal documents, as they aid criminals in other criminal activities such as money laundering. A criminal can acquire a passport using stolen identity information and establish fake shell companies in the victim’s name. For example, an individual could obtain the personal data of a U.S. citizen and then produce a counterfeit Bulgarian passport for as little as $20.

• Complete Fabrication 

This process involves creating a document from scratch, including fake signatures, logos, stamps, and text to imitate legitimate documents. Once a criminal successfully perpetrates a phishing attack, the stolen user data can then be used to create fraudulent passports, driver’s licenses, or bank statements. Fabricating complete documents is a serious issue, as it can facilitate heinous crimes like human trafficking and aid in evading government tax by laundering the illegal proceeds of activities such as drug trafficking.

• Counterfeiting 

In counterfeiting, an authentic ID document is fabricated from scratch to grant criminal access to legal government sources or a user’s personal accounts. Using this technique, a fraudster may create fake bank documents and credentials, which they can then use to access a user’s finances. The consequences of such an act can be severe, both financially and legally, which is why it is essential to remain vigilant and protect your personal information at all times.

• Digital Manipulation

Cybercriminals now utilize more sophisticated methods for online document forgery, which involves the use of digital data manipulation This technique can be used to modify existing documents, create fake documents from scratch, or even create documents with false information, which makes it essentially hard for individuals to differentiate between real and fake documents. The technique can be used to create fake accounts for illegal activities such as money laundering and illicit financing. Fundamentally, this technique can be used to commit fraud in almost any industry by creating fake accounts.

• Patchwork Forgery 

This document forgery technique involves the creation of a totally new document by utilizing multiple documents from legitimate users. Simply put, the patchwork technique allows criminals to fabricate a new identity by manipulating users’ existing data. A significant application of this technique also lies in using a victim’s personal data to perform legal actions illegally for personal benefit without the consent of the actual user.  For example, a genuine signature might be copied onto a fabricated ID card, or a bank statement may be altered with information from another document.

Document Fraud in 2024: Identifying Key Influencers

There has been a significant increase in digital document forgeries, with national IDs being the top documents targeted, accounting for a significant portion of document fraud, while the number of physical counterfeits has been declining. The increased reliance on digital documents has provided cybercriminals with an open opportunity to leverage consumer data for illicit purposes, leading to an increased risk of identity theft and ultimately facilitating the forgery of documents. Organized crime organizations are more sophisticated than ever, with advanced networks established on robust technological infrastructures precisely placed to aid criminals in committing fraud more effectively. 

• Rise in Low-Code Document Manipulators 

Cybercriminals, particularly fraudsters and scammers, leverage available technologies to enhance their fraud-perpetrating mechanisms. Unfortunately, the advent of low-code and no-code platforms has facilitated the proliferation of fraudulent activities by non-professional criminals. Specifically, they target unsuspecting elderly individuals who often lack the technical knowledge to differentiate between authentic and fabricated digital documents. These low-code platforms are designed with a primary focus on drag-and-drop mechanisms, which enable efficient manipulation of various digital documents such as images, PDFs, and more in significantly less time.

• High-Value Document Fraud 

As the trend towards digitization continues to grow, a majority of business processes are now carried out electronically. Consequently, important financial, legal, and personal documents have also been digitized and can now be easily accessed via cloud-based infrastructure. Although opting for the digital existence of documents provides users with heightened security against various threats, the possibility of fabrication and document forgery still poses a significant risk. There is a significant risk that high-profile companies and users may fall victim to a cybersecurity breach that could result in the theft, alteration, or fabrication of important documents.

• Increased Regulatory Scrutiny 

Globally, the heightened risk of money laundering and terrorist financing activities being facilitated through the use of fraudulent documents has raised serious security concerns. As a result, regulatory bodies have taken steps to combat these illicit activities and neutralize their impact. Global regulatory bodies such as the Federal Trade Commission (FTC) and the FBI’s Internet Crime Complaint Center (IC3) impose strict regulations on businesses regarding document verification. Companies specializing in identity verification (IDV) and document forged forensic verification are being endorsed by these regulatory bodies to improve the verification processes for effective threat prevention. 

Shufti Pro’s Document Verification for Advanced Security 

Shufti Pro offers IDV solutions that help businesses verify individuals’ identities, check legal documents, and comply with KYC/AML regulations. Our automated verification solutions help companies reduce costs on security and compliance by verifying users effectively at the time of onboarding, ultimately yielding better results that can be utilized to further upscale the business. With an accuracy of upto 99%, our document verification solutions verify documents within seconds, allowing businesses to comply with KYC/AML regulations, reduce client abandonment rates,  boost conversions, and create a convenient user experience

Still unsure about how robust document verification provides better security?

Since the last decade, governments and financial institutions have been trying to limit corruption, money laundering, immoral activities, and financial crimes globally. Finding a jurisdiction with little to no Know Your Customer (KYC) or Anti-Money Laundering (AML) regulations is tough. However, as technological advancements, globalization, and financial crimes increase, the movement of money and the fight against organized crime have become a significant concern among businesses, regulatory authorities, citizens, and governments alike.

PEP screenings have become one of the most critical branches of KYC and AML compliance guidelines, mandating businesses to perform enhanced due diligence checks on clients that fulfill the criteria of a PEP.  The importance of determining such entities is undeniable as their exposure to potential risks of money laundering, tax evasion, corruption, and terrorist financing.

What are Politically Exposed Persons [PEPs]?

The acronym Politically Exposed Persons [PEPs] first emerged in the 1990s, known as Senior Foreign Political Figures [SFPFs], right after the world witnessed the biggest money laundering attempt called the “Abacha Affair,” which paved the way for PEP screening regulations, fueling regulatory efforts to develop strong anti-money laundering laws – aiming to restrict government officials, political officials and other high-risk entities exposed to greater risk of financial crimes.

However, as PEPs include high-profile entities usually linked to political parties, it’s challenging for businesses to develop PEP lists and risk profiles, as the criteria for defining and considering an entity as a PEP is very broad, and policies vary jurisdiction-wise.

The FATF’s Take on Politically Exposed Persons [PEPs]

The Financial Action Task Force is an independent intergovernmental authority responsible for regulating the global financial ecosystem while developing anti-money laundering and counter-terrorism financing regulations to limit the illicit use of financial institutions for money laundering activities. The watchdog has emerged with a series of recommendations and policies. According to FATF: 

“A politically exposed person (PEP) is defined by the Financial Action Task Force (FATF) as an individual who is or has been entrusted with a prominent public function. Due to their position and influence, it is recognized that many PEPs are in positions that potentially can be abused to commit money laundering (ML) offenses and related predicate offenses, including corruption and bribery, as well as conducting activity related to terrorist financing (TF).” 

The regulatory authority also suggests that businesses should screen PEPs’ close associates, partners, and family members by undergoing customer due diligence checks as a broader aspect of the PEP screening program.

What are PEP Risk Levels?

Every regulated business needs to implement or have a guideline while working with a PEP. After the initial due diligence, if a customer is discovered to be a PEP, companies need to opt for enhanced due diligence checks to detect further the risk associated with them. FATF’s recommendations include 3 risk levels for PEPs – low, medium, and high depending on the risk they pose. The categories are listed as follows:

Classification of Politically Exposed Persons

Under the FATF’s anti-money laundering guidance, PEPs are classified into three categories, including:

1. Foreign PEPs: People with prominent public services in foreign countries, such as politicians, government officers, or heads of state, etc.
2. Domestic PEPs: Entities obliged to manage domestic public services, for instance, senior politicians, military officials, or senior executives of state-owned corporations, etc.
3. International PEPs: Individuals designated at prominent positions across international corporations. This type covers directors, deputy directors, and members of the board or equivalent functions, etc.

What is a PEP Screening?

As per global regulatory authorities, screening PEPs is a viable process that aims to help financial and non-financial businesses avoid exposure to money laundering risks while meeting compliance and evading hefty fines for non-compliance. To help understand the workflow of PEP screening solutions, your business must have robust AML solutions in place that empower them to detect and deter the risk of onboarding a PEP.

Let’s take the example of customers who approach insurance companies to get insurance, and in the initial screening, they are detected as a PEP. In such cases, before onboarding, the company must opt for enhanced due diligence checks to further screen against adverse media and other government databases to ensure they have no history of crimes.

Screening PEPs is a crucial aspect of KYC and AML compliance procedures. Businesses are mandated to screen customers against PEP lists, watchlists, government databases, and other adverse media channels. By practicing this approach, financial firms can effectively identify, manage, and deter risk associated with PEPs, ensuring compliance with KYC, AML, and CFT regulations.

The Importance of PEP Screening: Explained

Corruption, money laundering, and tax evasion are significant issues governments face today.  As per the World Economic Forum, it’s estimated that the cost of corruption has jumped $2 trillion, constituting approximately 5% of global GDP. The World Bank also states that individuals and businesses suffer a loss of approximately $1 trillion in bribes each year.  In addition to these, the United Nations Office on Drugs and Crime (UNODC), also reported that around $800 billion to $2 trillion is laundered yearly, which comprises 2% to 5% world’s GDP. These statistics show that financial crime is prevalent, and today’s economy is at risk.

Thus, PEP screening is not only crucial for rectifying financial crime risks but also an obligation by law in regulated jurisdictions. For instance, the US Patriot Act obligates financial businesses to develop EDD checks along with a robust ongoing monitoring process to oversee SFPF activities, a subset of PEPs.

Complexities Businesses Face During PEP Screenings

Screening customers against global financial crime databases and sanction lists is a governmental and regulatory obligation; however, it is a challenging, cost-draining, and time-consuming task if carried out conventionally. There lies a significant risk of false positive document forgery, tempering with the experience of customers unnecessarily recognized as PEP, and missing the potential match – exposing businesses to hefty fines, sanctions, and reputational damages for non-compliance with negligence.

• Changing PEP Status: With time, individuals verified as PEPs can experience changes in political standing, affiliation, and positions. This means they can either become riskier or be declassified as a PEP. However, assessing this change can be difficult for businesses. Keeping a record of the changes while identifying new PEPs requires automated PEP screening solutions that can acquire the updated data promptly to ensure the screening automation’s effectiveness.
• Cross-Border Complexity: Businesses and financial firms operating internationally encounter the risk of onboarding or working with politically exposed persons from various jurisdictions with different sets of laws and regulations. However, meeting cross-border compliance and navigating the complexities become challenging for businesses to ensure accurate PEP screening.
• Data Privacy and Compliance: Businesses must carry out enhanced due diligence and handling of personal information, which requires compliance with GDPR or other data protection and privacy laws. Thus, companies need to have robust PEP screening systems that can align information collection, processing, and storage with compliance while ensuring security measures against data breaches and unauthorized access.

Best Practices to Determine Changes in PEP Status

Clients may get the status of a PEP in multiple ways, including changes in employment, political appointments, promotions, or electoral victories. However, it’s viable that businesses must be able to determine the change in risk profile as soon as it does. On the other hand, companies should also be equipped to determine the declassification of their customers’ PEP status. Here is how businesses can identify the changes in PEP status:

• Customer Due Diligence: As a regulatory obligation, businesses need to oversee PEPs and non-PEP activities on a daily basis, ensuring that the risk of crime is mitigated before it actually happens. To do so, companies must have rigid customer due diligence checks in place.
• Employee Training: Financial institutions and other firms need to arrange training sessions for their employees to make them capable of detecting changes in PEP status. In addition to this, the FATF also suggests companies must have ongoing training sessions with the involvement of compliance officers while incorporating day-to-day and real-world cases.
• Adverse Media: Companies can check online available information sources like adverse media platforms to closely monitor their clients’ PEP status before confirming them by official sources. 
• Commercial Databases: These lists are available commercially to help businesses screen their customers to determine risk effectively. However, these databases can not be used in place for customer due diligence processes, and institutions may use these to further dive for enhancing PEP screening measures.
• Government PEP Lists: Like adverse media and commercial databases, businesses can access government PEP lists that consist of information related to public service officers recognized as PEPs to better understand their customers’ activities while determining PEP status in real-time. 

The above-mentioned key considerations are effective measures that help businesses determine customer PEP status changes. It’s noteworthy that enterprises need to monitor declassification from PEP status. This means that when clients are verified as PEPs, if they step down from public or governmental service roles, the risk profiles and PEP status should be changed and treated as normal customers. In addition to this, businesses must also closely review factors when seeking to downgrade PEP status, for instance, links to current political parties, the level of corruption they are exposed to, and how long they have been offering services.

However, there is no time limit for PEP declassification. According to the FATF, the declassification process should be based on risk assessment, not prescribed time frames.

PEP Screening Best Practices for Businesses in 2024

1. Businesses need to adopt a risk-based approach. If a client has been verified as a foreign or domestic PEP, businesses should initiate risk assessment and scoring models that can help them determine and undergo appropriate EDD levels.
2. Acquire customer information from multiple authentic sources, as it is necessary to extract data from adverse media, sanction lists, and government databases with the intent to determine clients’ PEP status.
3. Meet FATF’s compliance requirements by practicing rigid enhanced due diligence checks, establishing the source of funds for secure business relationships, and limiting the risk of getting involved in money laundering activities.
4. Companies are recommended to search clients’ names in their native language to limit false positive results.
5. Discover geographies to identify customer risks, as risks vary country-wise. Lower-risk jurisdiction helps businesses reduce the reviewing time of close associates and relatives.
6. Integrate a robust risk assessment and scoring framework to assess the potential risk PEPs pose. However, for each risk category, businesses’ risk assessment model must be able to calculate the risk factors while building robust risk scoring and mitigation processes.
7. Consider screening low-risk PEPs against only sanction lists while verifying medium-risk entities against sanction and regulatory actions. For high-risk PEPs, screen them against all available resources, including adverse media, government databases, watchlists, sanction lists, etc.

FATF Recommendations for PEP Identification

In addition to enhanced due diligence checks, the FATF has obliged financial firms and non-financial businesses to establish a comprehensive risk assessment and management framework to determine, assess, and mitigate PEP risk associated with PEPs. This framework should comply with regulatory policies and procedures that outline the businesses’ approach to effectively handling and deterring risk. Companies must also have rigid PEP screening systems that can identify PEP status in real-time.

The FATF also suggests that organizations must conduct ongoing transaction monitoring to ensure that the customers are not involved in syndicate crimes like money laundering and terrorist financing. An ongoing monitoring approach should be backed by rigid risk assessment checks to identify and eliminate any suspicious customer activity concerns while reporting them to local or international financial intelligence units.

Having social and regulatory responsibility, businesses need to arrange training sessions to equip their employees with capabilities to determine and assess the risk associated with their customers while raising awareness about the importance of PEP screening. 

PEP Screening Regulatory Requirements in the US and UK

PEP screening requirements differ slightly in terms of regulatory and domestic obligations in both countries.  In the United States, screening politically exploited persons is a crucial aspect of anti-money laundering and counter-terrorist financing programs. Under this obligation, businesses are mandated to align their PEP screening program with the Bank Secrecy Act and the Patriot Act’s requirements under the supervision of the country’s prominent regulatory authority, the Financial Crimes Enforcement Network (FinCEN). Additionally, companies must develop an in-house risk-based approach that should include customer due diligence for low-risk customers and enhanced due diligence for PEPs & other high-risk customers exposed to greater crime risk. If a customer is verified as a PEP, and the company has evidence regarding involvement in organized crimes, they must file a Suspicious Activity Report (SAR) to FinCEN.

Like the US’s requirements, PEP screening is a regulatory obligation comprising domestic and foreign PEPs. The United Kingdom has its own body, the Financial Conduct Authority (FCA), responsible for overseeing PEP screening programs while ensuring that companies are practicing AML laws effectively 

AML Screening for PEPs with Shufti Pro

Anti-money laundering screening solutions play a crucial role in determining and deterring the risk associated with customers recognized as PEPs. These high-risk entities are primarily exposed to political power and public funds, making them potential targets for committing financial crimes like bribery, money laundering, and corruption. Without an effective AML compliance framework, financial and non-financial businesses can unwillingly become part of organized crimes or facilitate PEPs in laundering their illicit gains.

Shufti Pro’s anti-money laundering screening solution allows businesses across 240+ countries and territories to identify and verify their customers’ identities while helping them uncover risks associated with them. In addition to this, our solution is designed to help companies make informed decisions by determining the PEP status of customers and elevate their compliance efforts. By screening customers against adverse media and 1700+ global watchlists, businesses can determine clients’ potential involvement in money laundering or other financial crimes while taking appropriate measures to handle risk effectively.

How Shufti Pro can help your business:

1. Successfully detect financial crimes, including money laundering & terrorist financing.
2. Meet global AML and CFT compliance.
3. Screen customers against PEPs, sanction lists, and adverse media.
4. Get access to 1700+ international databases.
5. Verify customers’ identities with 99% accuracy while mitigating the risk of onboarding PEPs.

Shufti Pro’s AML Screening solution is the first choice of 1,000+ businesses worldwide, helping them meet compliance, fight fraud, and accelerate trust across digital economies. Request a demo today and try Shufti Pro’s AML screening service to identify high-risk customers and mitigate risk effectively for compliance and reputation.

In today’s digital age, businesses must have a robust identity verification system in place that fundamentally helps them to protect themselves from advanced security threats. In 2023 alone, identity theft cost US businesses an estimated $56 billion, accounting for a significant chunk of the losses incurred by cybersecurity threats. While digitization has enabled companies to provide services to individuals from all parts of the world, it has also exposed them to an increased risk of digital fraud.

To effectively battle the increasing threat of cybercrime, it has become imperative for businesses to verify individuals’ claims by validating their identities. Identity verification solutions enable companies to safeguard their data and that of their customers from cybercriminals. These solutions are essential in mitigating the risks of identity theft and other financial crimes.

Identity Proofing vs Identity Verification: An Overview

In general, identity proofing and identity verification are essentially the same processes, as their main aim is to confirm the authenticity of an individual who intends to establish a relationship with a business. However, these verification tests are different in terms of how they are conducted. 

Identity Proofing is the act of demystifying the provided identity of an individual, verifying that the person attempting to establish a relationship with a business is who they say they are. This process can only be carried out using biometric data, document verification, and online authentication methods. 

Meanwhile, online identity verification provides a comprehensive authentication solution for businesses that enables them to effectively verify various aspects ranging from identity to the source of an individual’s finances. The global identity verification market size is estimated at $ 13.10 billion in 2024 and expected to reach $23.73 billion by 2029, growing at a CAGR of 12.62%

Fundamentally, identity proofing and verification are two mechanisms that cater to a process known as Identity and Access Management (IAM), which essentially manages the verification of an entity and the access it has to a company’s procedures. IAM is essential to ensure the security of a company’s resources and protect against data breaches, fraud, and other malicious activities. It is also essential to ensure compliance with various regulations, including GDPR and PCI DSS, by verifying an individual’s identity. 

The National Institute of Standards and Technology (NIST) explains the basics of an identity check by dividing it into two basic terms: 

• Claimed Identity 

Users are required to provide personal credentials and information, such as a PIN, ID details, or other relevant data, during the registration process for validation purposes. The validation system uses the provided personal data to establish user identities for accessing sensitive information. Providing personal information is considered “claimed identity,” but there is a significant possibility of the data being incorrect or stolen, which can raise concerns about the user’s identity and security.

• Actual Identity 

Once the registration process commences, the information provided by the user is cross-matched against official government databases, which determines whether the information provided is correct. The term “actual identity” refers to a user’s valid and registered data, which is meant to be used for identification purposes.

While the difference between these two aspects may sound subtle and insignificant, there is actually a huge gap. Claimed identity comprises simple information, such as email addresses, with no mechanism to verify whether it is legitimate. Meanwhile, the actual identity is determined after an in-depth analysis and verification of the data provided by the individual.

Understanding Identity Proofing: The Basics 

Identity proofing is the process of validating the data provided by a user to grant access to a specific function associated with the user. Identity proofing solutions aim to verify a user’s claim about their identity rather than relying on knowledge-based verification. 

Identity proofing services have lower validation accuracy; however, they are viable for small processes as they require a user to provide documents to prove their identity. A general identity-proofing process can be divided into the following steps: 

• Resolution

In this part of the identity-proofing process, a user is prompted to provide personal information, which is then recorded. This provided identity data is then placed in the identity check solution to be verified. 

• Validation

The next step in the identity-proofing process is to validate the data gathered on an entity and establish a supposed identity. This step determines whether the data provided is legitimate and not incorrect and places it for further verification. 

• Verification 

This last process in identity proofing involves verifying a user’s established identity based on the claims and data provided. Further proceedings involve verifying the gathered information for access granting, which keeps business processes safe and authorizes only verified users.

In contrast, ID verification is divided into five comprehensive steps, ranging from acquiring users’ accurate identity data from government databases to verifying it against global criminal records and sanctions. It offers companies a more secure verification solution than identity proofing and ensures that businesses remain safe from cybercriminals and fraudsters. 

How Does Identity Proofing Differ from Identity Verification? 

Identity proofing and verification differ in efficiency, with identity proofing being less efficient. One reason for the difference in verification requirements between a general verification firewall and a financial institution is due to the scale of the processes involved. Identity proofing may be sufficient for the former, whereas identity verification is necessary for businesses that require more security.

• Personal Aspects of Users 

A robust identity-proofing solution allows businesses to collect users’ personal data, such as name, address, date of birth, and social security number, which is then associated with the user to establish an identity claim. In a standard identity proofing use case, a user is validated just with the identity claim, whereas identity verification services go one step ahead and conduct an in-depth verification check on users. 

• Document Validation 

In some cases, users must also provide documents such as a government ID or passport, which are used as an identity claim rather than manual data. However, in this case, there is a threat of fabricated documents and forged identities, which an average user cannot spot. Companies need to have a more advanced verification solution in place to effectively eliminate the threat of fake documents while validating a user. 

• Biometric Data Analysis

The utilization of biometric data, such as fingerprints and facial recognition, is becoming increasingly prevalent in efforts to enhance identity proofing. However, there is a significant threat of deepfakes that imitate the fundamental biometric features of a legitimate user. Identity-proofing solutions can effectively verify biometric features; however, they can fail at catching deepfakes and fabricated biometric features, which might expose a business to a significant cyber threat. 

Identity proofing may not be as compliant with global regulations compared to Identity Verification (IDV), which ensures a company’s compliance with the rules of the jurisdiction in which it operates.

Identity Verification with Shufti Pro: Enhanced Verification for Businesses 

Shufti Pro is a full-scale verification solution for businesses that enables effective user verification globally. Our services are available globally in over 240 countries and territories. Our solution provides a multi-level verification process, OCR data extraction in over 150 languages, and robust security firewalls that can instantly detect fraudulent IDs.

We help businesses navigate through complex regions, and our identity verification system maintains regulatory compliance. Our cutting-edge solution stands as an impenetrable fortress of identity verification. With our top-notch security measures, we ensure that no entity is granted unauthorized access.

Still unsure about how Identity Verification can help you enhance your security?

Private market companies are setting their sights on retail investors and exploring technology and innovative funding structures to overcome the sector’s barriers. Such retail investors are turning to private markets for diversified risk, enhanced returns, and lower volatility. With the high stakes, the private equity assets market is anticipated to grow by 10.2% yearly, while venture capital investments are positioned to surpass $659 billion by the end of 2027 compared to $531 billion as of 2022. 

However, today’s investors expect a digital onboarding experience from wealth managers that parallel standards seen across all other major online marketplaces. To meet this growing demand, wealth managers are going digital while offering several financial services, such as managing investor wealth, finding opportunities to create more wealth, and revisiting investment plans after periodic intervals. Forrester, the research agency, investigated wealth managers and found some interesting outcomes from the shift to digital.  For instance, using automated investor verification solutions reduces initial onboarding time to a few minutes, resulting in more than 90% enhancement and increased customer conversion rates. Despite the fact the investment sector is transforming, it is exposed to increased risk of crimes, leading to significant financial losses.

What is Investor Onboarding? 

Investor onboarding is introducing new investors to a financial or investment platform while screening them against financial crime databases by undergoing KYI checks to ensure that their initial investments are coming from legitimate sources. The traditional procedure usually takes months to ensure a seamless execution. However, investment firms can use automated Know Your Investor (KYI) checks to carry out the same process within seconds.

The first step of the KYI verification process is to identify the true identities of investors, followed by anti-money laundering screening and rigid due diligence checks. AML is one of the key steps in investor onboarding as it helps businesses screen their potential investors against a global financial crime database, ensuring that they are not linked with any crime. Once investors undergo the AML screening phase, they can make transactions.

Why is a Legitimate Investor Onboarding Process Important?

As mentioned, investor onboarding is a critical component of a fundraising process, so why exactly is this so important to investment firms? Firstly, meeting know your investor compliance is a regulatory obligation, and verifying identities helps firms meet this requirement while adhering to other regulations, such as Know Your Customer (KYC) and Anti-Money Laundering (AML) standards. An effective onboarding procedure ensures that KYI, KYC, and AML checks are practiced systematically, reducing the risk of onboarding fraudsters and effectively deterring financial crime.

In addition to meeting compliance requirements, the investor onboarding process is also imperative in creating a positive impression among the investor community, leading to long-lasting relationships. This can only be achieved by integrating state-of-the-art KYI solutions, while a slow, tedious investor onboarding procedure can lead to increased drop-offs and delays in capital deployment.

Ultimately, a frictionless onboarding journey frees up the capacity for investment firms to focus on value-adding tasks, for instance, finding new investors and managing investment portfolios.

What Steps Are Involved with Onboarding Investors?

Across all jurisdictions, particularly across Europe and the US, investment firms must practice certain checks to ensure compliance onboarding. These steps include:

• Information Collection: Gather investors’ personally identifiable information, government-issued identity documents, and investor profiles required to complete the onboarding process. 

• Document Authentication: automated checks create the templates and match them against ID documents placed in the database.

• AML Screening: Undergo background screening against financial crime databases to verify that the potential investor has a clean track record.
• Results: An investor is onboarded and authorized to make investments upon successful verification. 

While the above steps look simple, if done manually, they are complex processes involving an array of emails, form filling, and ongoing communication with each potential investor. This way of onboarding is not adequate for anyone involved, including investors, customers, and the firm. Practicing manual onboarding processes can damage investment firms’ reputations, leading to inconvenience and decreased conversion rates. Additionally, it could expose a firm to various risks, including GDPR compliance breaches, especially around gathering and managing investors’ personally identifiable information. Some investors may also find the onboarding process hectic, leading to frustration and backing out of their investments while investing their funds elsewhere. For these reasons, the investor onboarding process should be simple, investor-centric, and hassle-free for every entity involved.

Back-End Complexities in the Digital Investment Sector

By harnessing the power of automation, enhancements being made within customer onboarding processes are notable. The unnecessary complexity and blocks around compliance, verification, onboarding, and payments adversely impact both investors and the firm.

Compliance Roadblocks 

Any digital service other than opening a bank account can lead to a complex compliance structure and due diligence extensiveness. However, the compliance is designed to secure investors’ integrity. Many investment firms have failed to connect the disparate set of advanced technologies and services to make the investor onboarding journey frictionless. From investors’ identity verification to due diligence checks to AML screening, interjection of human resources and manual processes can become the reason for fluctuating investor onboardings, leading to lousy customer journeys.

Order Execution Bottlenecks

While the transactions of buying simply equity are fast, the tantalizing dream of  T+1 settlements still requires the swift execution of transactions. However, the US has a regulatory agenda for this issue, while India is pioneering the way to enhance the process. Still, surely investors who make same-day transactions for other payments will find it difficult to understand why this is not the same for securities; after all, it’s just a data transfer. In addition to delays, investment fund order execution is notoriously inconsistent. End-of-month clauses are uncommon and take days and months before money is invested. Those seeking to get benefits of timing and market corrections end up frustrated. Near to an investor, validation is not a necessary prerequisite for a purchase.

Transfer Delays 

While it’s challenging for many to completely understand why automated processes have not transformed the whole wealth management sector, some significant hurdles are more complex and fundamental than others – including transferring funds, switching between multiple wealth managers, and meeting regulatory obligations all while restricting to manual expert reviews and checks. Perhaps the most acute problem among these is the transfer of assets or wealth. The transfer between highly regulated and privately managed or self-directed schemes represents one of the most hectic and time-consuming processes investors face. It usually takes many months to process the transfer of wealth – by which time the market situation has most likely changed. Dealing with this specific problem has become an industry-wide challenge.

Manual Onboarding Process

Conventional paper-based investor onboarding processes require multiple human resources and outside counsel to handle document processing, including limited partner or non-disclosure agreements, side letters, and tax documents, while ensuring Anti-Money Laundering and Know Your Customer monitoring checks. However, managing this process manually requires spreadsheets, checklists, emails, and disparate platforms. In addition to this, determining the investors’ status also slows down the onboarding speed. This back-and-forth array of processes, including paperwork, signatures, and follow-ups, can take days and even months to verify the identity of an investor. However, harnessing the power of automation can streamline onboarding while eliminating the risk of inefficiency, frustrations, delays, and investor drop-offs.

Digital Investor Onboarding: The Ultimate Solution 

Finally, in today’s digital-first world, digitizing the entire journey using automation technologies is the best way to simplify the investor onboarding process and communicate effectively.

The question arises: how? An automated investor onboarding automatically reduces the potential of human error, removes friction, increases transparency, automates document processing, eliminates human interventions, and reduces onboarding time – all while enhancing the customer journey.

Here are some prominent examples of leveraging technology to enhance investor onboarding:

1. Optical character recognition (OCR)  scanner to fast-track document verification using automated data extraction.
2. E-signature to automate approvals
3. Face biometric authentication for liveness detection and contactless onboarding.
4. Customer relationship management solutions to track investors’ interactions, payments, and other activities.
5. Integration with third-party identity verification services can save cost and onboarding time.
6. Automated document verification solutions can streamline onboarding processes.
7. NFC-based solutions can make payments more robust and secure.

However, investment and wealth management firms may have ample time and resources to automate each investor onboarding procedure component. Still, automation technologies can benefit by digitizing repetitive and redundant tasks while streamlining more complex aspects of the process.

Luckily, your business doesn’t need to worry, there is a state-of-the-art investor onboarding solution that can streamline your onboarding journey – Shufti Pro!

Onboarding Legitimate Investors with Shufti Pro

Shufti Pro, a pioneer in offering identity verification services, provides investment firms with robust and technology-backed know your investor verification solutions that aid companies in determining investors’ identities while authenticating their status and documents in real-time. Our solution supports 10,000+ ID document types in more than 150+ languages with coverage across 240+ countries & territories, making it simple for businesses to authenticate their investors without delays.

With Shufti Pro, your business can:

1. Ensure only legitimate investors are onboarded, mitigating potential risks.
2. Safeguard your business and mitigate risk with our experienced Money Laundering Reporting Officers.
3. Reduces internal compliance costs by up to 60%.
4. Comply with regulations and safeguard your business reputation.

Online gambling has seen significant adoption in the past few years because of the convenience, variety of games, and social interactions it provides to users. With recent technological advancements, users can now gamble from the comfort of their homes and access global gambling platforms easily. Taking Canada as an example, the online gambling industry is predicted to reach a market size of US$138.10 billion by 2028, growing at a CAGR of 6.51% between 2024 and 2028. This year alone, Canada is projected to have the highest-ever recorded user penetration rate of 48.6% in the online gambling market.

It is of utmost importance to take note that regulatory authorities, including the UK’s Gambling Commission, strongly advise against indulging in gambling due to the substantial risks that are inherently associated with it. Additionally, over 20% of compulsive gamblers have been reported to file for bankruptcy as a direct result of their gambling losses. The incidence of online gambling fraud has been increasing in recent years, and it is responsible for a substantial portion of the financial losses reported by online gamblers. To perpetrate these crimes, cybercriminals utilize a range of techniques to exploit online gambling platforms, including multi-accounting, bonus abuse fraud, chargeback fraud, and identity theft.

What is Gambling Fraud? A Brief Overview 

Online gambling poses a substantial risk of fraud and gambling, similarly experienced by many other online industries that deal with large quantities of money and transactions on a daily basis. Cybercriminals can infiltrate any online gambling platform and conduct fraud by subjecting individuals involved in bets to extraction formats ranging from phishing to the direct proliferation of assets. In traditional gambling fraud cases, cybercriminals often target online gambling service providers rather than individuals, as high-volume transactions attract both professional and amateur scammers.

Online gambling platforms are a primary target of cybercriminals as they are accessible and have open cash pools with visible openings for legitimate users. As these platforms exist on Web 2.0, conventional phishing techniques and backdoor creation still work effectively and allow criminals to commit fraud. Keeping a holistic view of online gambling scams is a crucial matter, as the monetary amounts involved in this context are substantial. Implementing effective measures to avoid fraud gambling is imperative, as it can cause significant financial damage to both individuals and organizations.

A Deep Dive into Gambling Scams and Fraud: The Most Common Techniques  

Gambling fraud and scams are multifaceted practices as they target a broad consumer base along with the gambling service provider and pose complex issues. As such, business owners and individuals in this industry must understand the intricacies of these scams. 

• Rigged and Fake Gambling Platforms

Fraudsters accessing an online gambling platform may manipulate the algorithms to generate fake results. Scammers sometimes create fake gambling sites that mimic legitimate ones and encourage users to place bets on them. These platforms offer lucrative bonuses, guaranteed wins, and stakes to users, which are aimed at ripping them off.  Additionally, criminals may give false signals to players by impersonating themselves as genuine sources. Favored outcomes generate more bonuses for criminals, ultimately leading to greater profits and winning rates. 

• Multi-Accounting

Some gamblers who intend to commit fraud utilize multi-accounting to secure more wins. A fraudster may use stolen information to create hundreds of accounts and rig a game in their favor. Once a scammer secures multiple accounts, multiple bets are placed in a pre-planned algorithm that aims to tilt the winning stakes in the fraudster’s favor. Detecting fake accounts of a single user is a significant part of online gambling fraud prevention and requires continuous monitoring and robust identity verification. 

• Account Takeovers 

Another significant aspect of online gambling fraud is account takeover. Fraudsters can access an account by stealing login information and subsequently taking control of the account. Online gamblers with high win rates, bonuses, and account balances are a significant target for these individuals, as they promise higher financial potential. In this instance, criminals use phishing emails and cold texts to get unauthorized access to a user’s gambling account by extracting their credentials. 

• Bonus Abuse and Ponzi Schemes 

A major chunk of scammers targeting the online gambling sector also utilize bonus abuse, a scamming tactic that leverages loopholes or bonus terms to gain unfair advantages over other individuals or manipulate their wagering requirements to withdraw funds without fulfilling legitimate conditions. Moreover, Ponzi schemes are also utilized to deceive legitimate users in a gambling space. Deceptive gambling schemes promising high returns based on gambling winnings are used to lure players in, but they ultimately result in financial losses when the scheme collapses. This directs all the winnings and bonuses towards the scammer and allows them to secure significant finances without getting caught. 

• Gnoming and Chip-Dumping 

Gnoming is the act of using multiple-accounts “gnomes” to control a game. A cybercriminal proliferates the game using gnomes and makes the other players lose by tactically placing the moves of the fake accounts. The primary purpose of this tactic is to make the other players lose and redirect all the winnings to the perpetrator. Conversely, chip-dumping is typically used to tamper with the leaderboard, tournament standings, or final results. Through inter-account chip transfers, criminals can make sure that one account gains a sizable chip stack without having to earn it through honest gameplay.

The Threat of Money Laundering in Online Gambling 

Criminals can exploit online gambling platforms as a means to conceal the proceeds of money laundering, where funds acquired through legal sources are cleansed to make them usable. The median loss for money laundering offenses in the US was $301,606, with 20.3% involving loss amounts of $40,000 or less and 22.0% involving loss amounts greater than $1.5 million. The virtual nature of these platforms and their freedom to conduct high-volume transactions make online gambling platforms an ideal venue for money launderers to launder money. Given these factors, businesses involved in online gaming need to remain vigilant and take adequate measures to prevent and detect money laundering activities on their platforms. 

A criminal can deposit the proceeds of illegal activities on online gambling platforms by utilizing methods such as structuring and smurfing. These methods allow criminals to deposit money in packets that are just below the reporting cap, allowing these assets to go unnoticed by regulatory bodies. The gambling proceeds are then created when these assets are used for gambling activities. The gambling proceeds are then created when these assets are used for gambling activities. These assets are then converted into clean money by being withdrawn in small amounts through cryptocurrency or bank transfers, further concealing the assets.

Online Gambling Fraud Prevention with Shufti Pro 

To avoid money laundering in the gambling sector, robust identity verification solutions should be integrated for secure transactions. Businesses need to ensure that they stay aware of fraud attempts and potential scams because, if left unchecked, they can deal significant financial damage to a business. Online casinos often fail to prevent money laundering due to weak AML compliance and identity verification programs. 

Shufti Pro provides effective AML screening, identity verification, and gambling compliance, which makes it an ideal choice for online gambling platforms. By using our solution, these platforms can avoid regulatory penalties and eliminate fraudulent entities with an unmatched accuracy of 99%. Our highly configurable solution can be integrated with any business platform globally. It supports more than 240 countries, making it a versatile and reliable choice for businesses worldwide.

Discover the benefits of AML screening solutions for gambling operators and platforms today with Shufti Pro IDV. 

The Optical Character Recognition (OCR) market was valued at US$15 billion in 2019 and is expected to grow at a compound annual growth rate (CAGR) of approximately 15% from 2020 to 2030 – forecasted to reach an estimated value of US$70 billion by 2030. The need for optical character recognition in different global markets has arisen due to the demand for efficiency and automated solutions in the verification processes. Companies require a robust verification solution that can aid them in keeping cybercriminals off bounds and safeguarding their operations. 

Businesses must have security checkpoints at every process, from user onboarding to transactions, as verification firewalls alone are insufficient. Document verification is an extensive task that requires companies to gather and verify the necessary identity documents of a user. Manual document verification is a time-consuming process that can lead to errors, and automating this process can help individuals keep track of all business activity.

What is Optical Character Recognition (OCR)?

Optical character recognition (OCR) has revolutionized how document verification works by improving text recognition’s speed, accuracy, and security. Leveraging  OCR technology into the standard verification process can be a game-changer for businesses looking to improve their security. 

OCR is a globally recognized system that enables businesses to extract and convert text from paper-based documents into decipherable computer-readable formats. For instance, an invoice or receipt saved on a computer in image format is devoid of functions like editing and searching, making it hard for businesses to go through those documents. OCR enables users to convert those documents into machine-readable text, storing and preserving all content as text data.

OCR technology helps companies reduce verification time and automate document authentication procedures like data scanning, processing, and archiving, which ultimately minimizes the need to acquire physical documents. OCR is essential for handling countless document formats in both paper and electronic form, with robust data-capturing features.

Decoding OCR: Exploring its Types and Functions 

Companies of all sizes use OCR technology to improve their document verification processes and safeguard their data while detecting signs of manipulation or forgery in real-time. A robust OCR scanner offers many solutions to companies that allow them to leverage modern technologies for streamlined document verification processes. Where OCR extracts characters from a document utilizing existing templates, it has other types depending on the data captured, some of them are as follows:

• Optical Word Recognition (OWR)

OWR relies on the same processes as OCR; however, it is essential to note that OWR is a bit different from OCR. It is primarily used to scan multilingual documents, especially those languages that use syntax and semantics with extensive spacing and strokes. Text formats that separate alphabets while spacing are hard to scan using traditional methods, which is why a more advanced version of OCR is utilized. OWR technology focuses on one word at a time and works best on printed documents. 

• Intelligent Character Recognition (ICR)

A major challenge that OCR solutions face is recognizing uncommon text fonts and styles that vary from person to person. ICR technology leverages advanced data capture techniques to scan and recognize versatile writing styles. AI and ML are used to analyze text components like lines, loops, and curves to help people scan complex documents, which ultimately aids better text recognition. 

• Optical Mark Recognition (OMR)

This OCR application is specifically designed to recognize symbols and logos present on documents. Traditional OCR technologies may sometimes confuse smudges, dots, and logos with text, leading to inaccurate data extraction. OMR technology helps companies differentiate between symbols that are logos and those that are not, resulting in greater accuracy. Additionally, with the help of OMR, streaks and unnecessary lines that may have been inadvertently produced are also scanned and eliminated.

Optimizing Operations: The Crucial Role of OCR in Business Improvement

OCR solutions now come up with an accuracy of up to 99% as a result of the significant advancements in AI and ML algorithms. A robust OCR scanner leverages ML and AI algorithms, which allow higher accuracy and efficiency in converting text from unorganized files like physically printed documents, screenshots, or document images with high precision and zero errors.

• Enhanced Efficiency and Productivity  

OCR eliminates the extra hassle for businesses regarding tedious tasks, ultimately saving time and freeing up resources that can be redirected to other tasks that require human skills and creativity. This accelerates processing times and reduces human errors, resulting in more accurate data and increased productivity. OCR can be easily integrated into the existing workflows of a business and allows them to streamline document verification processing by processing more documents in a shorter time frame. 

• Enhanced Due Diligence (EDD)

OCR aids the document verification process and allows companies to leverage robust verification, ultimately improving reporting. By implementing this method, companies can fast-track their enhanced due diligence process while ensuring compliance with global regulations. This allows companies to streamline operations, saving time and resources.

• Eliminating Financial Crime 

Document verification backed by OCR technology empowers businesses to verify crucial identity documents quickly and with increased accuracy, allowing them to identify illicit entities beforehand. Individuals such as money launderers and terrorist financiers can use fake documents to manipulate companies’ verification systems and utilize them to carry out illegal financial activities. A robust OCR software can enable institutions to effectively scan and verify documents against pre-defined templates, ensuring they are not forged. 

OCR Dynamics: Exploring Influence on Industries 

Optical Character Recognition (OCR) has played a crucial role in revolutionizing multiple industries that utilize enhanced document verification for streamlined processes. 

• Banking 

The banking sector uses OCR scanners to meet compliance requirements effectively. This technology utilizes OCR to validate paperwork for deposit checks, loan documentation, and other banking transactions, and businesses in the banking sector to secure transactions, prevent fraud, and validate more documents in less time, ultimately contributing to a more productive workflow.

• Healthcare

Businesses in the healthcare sector can leverage the power of OCR technology to process patient records, including insurance payments, hospital records, diagnostic tests, and treatments. This allows businesses in this sector to streamline their record-keeping, finances, and compliance while balancing finances. Companies in the healthcare sector have higher compliance and insurance costs, which requires them to have a robust verification and data collection system.

• Government Bodies 

Optical character recognition technology is a highly practical and innovative tool that can greatly benefit government bodies and regulatory authorities. By integrating OCR into processes like applications, forms, and other documents, governments can significantly reduce processing times for citizen services like passport renewals, visa applications, and social security benefits. Further, this will help governments automate data processing, digitize archives, and enhance document management, ultimately creating a productive workflow that will help boost the economy. 

The Synergy Between OCR and Identity Verification (IDV) 

Streamlined document processing and verification through OCR can significantly improve the identity verification process, allowing companies to scale up their verification journey. A robust OCR application complements existing verification workflows and creates a more efficient process for businesses while having a user-friendly interface for consumers. 

Shufti Pro’s OCR for business combines artificial intelligence to perform instant image-to-text conversion of paper-based documents into digital PDFs and text documents. Our industry-grade solution extracts information from a wide array of documents, including handwritten papers, business records, official letters, invoices, and much more. Shufti Pro’s OCR has multilingual support for 150+ languages and covers 240+ countries and territories. With more than 90% accuracy, online businesses can efficiently optimize their customer data.

Customer identity verification is significant in today’s digital world – from buying products online to transferring funds in nanoseconds, proof of address validation plays a crucial role in this. As global industries and consumer expectations evolve, companies need robust, swift, and fully-automated identity verification solutions – and one key aspect of customer onboarding is proof of address verification.

What is Proof of Address (PoA)?

While verifying customers’ identities, address validation is one of the highest priorities during the IDV process and shouldn’t be neglected. Generally, the digital PoA verification process generally involves gathering valid and recent documents containing the individuals’ addresses. The information and the image on the documents match the data the customer provided during form submission. In addition to this, third-party or government address databases may offer businesses more assurance that the address exists.

All regulated industries require proof of address as a part of KYC compliance. For instance, financial institutions ask customers to provide PoA to verify bank accounts. Additionally, federal, local, and state government agencies may ask citizens to provide additional documents as proof of address to receive benefits, register to vote, or get a driving license.

What Type of Documents are Accepted as Proof of Address?

There is a long list of documents that can be used as proof of address; however, acceptable PoA documents typically vary in countries. Proof of address examples include:

• Utility bills 
• Credit card statements 
• bank account statements 
• Signed lease agreements
• Mortgage statements
• Any correspondence issued by a government agency
• Property tax receipts
• Council tax or municipality bills
• Social insurance statements
• Driver’s license
• Identification card
• Residence permit 
• Social security card

In case a customer is under the legal age, they can provide proof of address with their parent’s or guardian’s name. However, it’s noteworthy that customers need to provide different documents for proof of address other than they submitted earlier for identity verification.

Documents for Proof of Address That are not Acceptable

• Any handwritten bill, document, or letter
• Pension statement
• Insurance policy
• Receipts
• Purchase Invoice
• Any document that does not have a date

Why is Proof of Address Necessary?

Gathering and verifying customers’ addresses is one of the key components of a customer identification program  [CIP], along with collecting personally identifiable information. Businesses are required to know your customer and anti-money laundering regulations, which require proof of address as part of a risk-based approach to verify customers’ identities and fraud prevention.

But, even when it’s not a regulatory obligation, going the extra mile to gather and authenticate customers’ addresses can help businesses mitigate the risk of fraud and financial losses.  

How Does Proof of Address Work?

In some situations, businesses may mandate their customers to visit a branch or office to submit documents proving the authenticity of their provided address. Conversely, companies may also send a code to their newly onboarded customers to verify that an individual genuinely lives there.  Once the client receives the code, they can use it to finish the onboarding or online access.

However, these practices are insufficient to sustain today’s digitized world. Instead, businesses need to regularly turn to online proof of address processes, including fully automated address and document verification solutions that can swiftly detect and validate customers’ addresses. With the advanced tools backed by optical character recognition technology, companies can automatically gather, scan, extract, and verify address information while determining that the provided proof of address is not forged, altered, or modified. 

A proof of address verification process includes:

1. Customers submit government-generated documents along with proof of address documents.
2. Address details are extracted using a robust identity verification solution leveraged with document and address verification checks backed by OCR technology.
3. The extracted data matches that of information placed in the identity documents using address checks.
4. With a perfect match, the customer’s address is verified.

However, it’s noteworthy that businesses can set custom rules for proof of address checks, for instance, whether they want exact matches or partial matches; it all depends on the business requirements. In addition to this, companies can also decide what they will do if the address is a partial match or a mismatch. They can either initiate manual review or request customers to provide new address documents – requiring enhanced address verification checks or simply declining customers’ applications.

Geolocation as Proof of Address

Other than utility bills or identity documents, geolocation can also be used as proof of address as it’s a more convenient, time-saving, and hassle-free alternative to acquiring customers’ physical documents. However, regulatory authorities have not yet wholly accepted geolocation-based PoA compared to traditional document-based verifications; companies can still practice this check as a complementary measure during the know your customer and customer due diligence procedure. However, in the Finanсial Action Task Force (FATF)’s Guidance on Digital Identity and Opportunities and Challenges of New Technologies for AML/CFT, the regulatory authority has mentioned geolocation-based proof of address, which emphasizes the importance of geolocation checks. 

Using Geolocation verification checks businesses can identify:

1. IP Address and Device Type Detection
2. Accurate Timestamps Collection
3. Precise Latitude and Longitude

However, businesses must obtain customers’ consent before asking for or accessing geolocation data to meet GDPR’s data privacy and protection laws and standards.

Submitting Your Proof of Address: Best Practices

For frictionless, swift, and uninterrupted proof of address verification, some key considerations need to be met while submitting a PoA document. Key practices include:

1. Provide Updated Address Proof: Depending upon the businesses’ requirement, proof of address document must be the one having updated information; old papers can halt operations, creating inconvenience. For instance, if a customer is providing a rental deed, it should be the latest version, and the utility bills should be for the current month. However, requirements vary; some companies may accept up to six-month-old documents, too.
2. Maintain a Single Document Version: customers must not alter or update the proof of address document after submission. If they find any errors that need correction, it’s always better to resubmit the new document instead of changing the uploaded document.
3. Date and Signature Must be Visible: Proof of address documents’ critical information such as date of issue, name of the issuing authority, and the signatures should be clearly visible. This information is viable for streamlining verification procedures despite the fact it is carried out manually or automatically using document verification solutions leveraged with OCR technology. However, having vagueness in such data points can result in delays or rejection.
4. Accurate Address Details: A proof of address must contain a precise, legitimate address. While customers can add nearby prominent places or landmarks, they should not substitute the actual address. 
5. Consider English Documentation: Although OCR scanners can easily interpret information from documents written in multiple languages, submitting a proof of address in English is suggested. For instance, if a business is not using OCR technology for data extraction purposes, the human verifier may not be proficient in other languages; using documents in English can ensure a more seamless process.

Top 10 Problems with Proof of Address Documents

While there are tens of best practices to master the art of proof of address verification suggested by global lenders and experts, it’s worth noting that acknowledging the potential challenges that arise with PoA documents. Common issues include:

1. Lack of clarity and readability is proof of address documents.
2. Sometimes, address documents lack complete information, which leads to potential complications. 
3. Interchanging temporary and permanent addresses creates unnecessary delays.
4. Misplacement of permanent and temporary addresses can halt the verification process, resulting in rejection.
5. Disparities in PoA documents.
6. Multiple versions of the same document, submitted many times over time, can create problems for companies when deciding which document version should be used.
7. Absence of critical information such as issue date and signature of issuing authority.
8. Some critical documents require attestation. Such document types submitted without being attested from credible sources can become a major problem during verification.
9. Language barrier, which creates clarity and consistency issues.
10. Submitting non-valid, expired proof of address.

Gather Accurate Proof of Address with Shufti Pro

Proof of address is a key component of the KYC compliance program as it fast-tracks the identity verification process by detecting bad actors, mitigating fraud, and verifying the true location of customers. Although verifying proof of address is a regulatory obligation, businesses can choose from multiple options on how they want to verify their customers’ addresses.

Sending postcards with verification codes or asking customers to visit for in-person checks can be costly and hectic and is not an option that can be practiced as it can’t meet today’s customers’ evolving demands. Whereas digital proof of address procedures are often more robust, secure, and accurate – your business still requires tailored PoA solutions that can uplift customer experience.

Shufti Pro offered a tailored approach to proof of address verification, powered by state-of-the-art document and address verification solutions. Your businesses can swiftly gather customers’ proof of address documents and customize the verification checks according to experience-tailored data extraction approaches to meet business requirements. With Shufti Pro’s KYC journey builder, you can set your own rules and data points along with the type of proof of address your business wants to accept. Our address verification solution is powered with rigid document authentication checks leveraged with our in-house OCR technology – a perfect solution for businesses seeking to verify customers’ addresses, fight fraud, and improve user experience with no effort.

FAQs:

What counts as proof of address?

There are tens of documents that businesses accept as proof of address. Some of most comment PoA are as follows:

• Utility bills
• Bank statements
• Rental agreements

Proof of address must include the following information:

• Government-issued Identity number
• Name
• Full address
• Date of issue

Proof of address cannot be older than three months (except for rental agreement).

Is a bank statement proof of address?

Yes, bank or financial statements count as proof of address, as they have customers’ addresses on them. However, if you are providing bank statements as PoA, you need to make sure that they are no more than 3 to 4 months old and should contain the transaction history of the last 12 months.