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KYC (Know Your Customer) Isn’t Just for Banks

Photo of a bank for post about KYC (Know Your Customer)

“KYC” (Know Your Customer) refers to how banks verify the identities of prospective customers. In this post I will show why KYC can be equally important for other types of businesses.

One of my European clients (“Client”) provides in-demand horticultural products. In 2013, we formed a Delaware corporation by which Client does business in North America.

Client Victim of Expensive Scam

Several months ago, Client received a large order from a nationally known construction company (“Construction Company”). Or so Client thought. As it turns out, Client was the victim of an expensive scam.

Client shipped $200,000 of product from Europe to an address in Southern California. However, it turned out that the company at that address wasn’t Construction Company. And the shipped product had disappeared without Client having been paid!

I did some quick research. Although the scammers had used sophisticated techniques, Client had failed to notice certain anomalies before processing Construction Company’s order. For example:

  • The Construction Company employee who ostensibly placed the order had left the company three months earlier. A search of the company’s website or LinkedIn would have shown that he no longer was an employee.
  • The email domain for the “employee” who placed the order was different from Construction Company’s website domain.
  • The email address for the woman in Southern California who (ostensibly) was to receive the order was the same as that for the (ostensible) male employee in Miami who placed the order.

Private Investigator to the Rescue

I called around to find out where Client should file a police report (which was the city where Client accepted the order). I then recommended that Client retain a private investigator to help recover the stolen products. Client accepted my recommendation.

After doing a bit of research, I introduced Client to Scott Hunter of Hunter Investigative Group, Inc. Scott and his team came to the rescue!

I won’t go into too much detail because this matter still is under investigation. Here are some of the highlights:

  • To keep the perpetrators on the hook, Client accepted a second order from Construction Company.
  • Part of that order was shipped with a tracking device that Scott provided.
  • Once the order arrived and was placed in a shipping container in a parking lot. Scott’s team monitored that lot.
  • Eventually, an individual came to retrieve the goods. Scott arranged for local police to arrest him.
  • That individual stated that the criminal masterminds were in a country in Eastern Europe.
  • That individual identified the warehouse where other stolen goods had been stored.
  • Police obtained a search warrant. Client recovered the second order and 90% of the first order, which still was in the warehouse!

As you might imagine, Client was thrilled.

My KYC Practices

Even though I don’t bill clients for hundreds of thousand of dollars of services, I nevertheless have certain KYC practices that I follow before I respond to a prospective client inquiry. These include, for example:

  • Doing a search for the relevant individual’s email address. This may help confirm the individual’s identity and disclose his or her business activities.
  • Doing a search for the relevant individual’s name, both on the Web and on LinkedIn, if it is not too common and if the email search did not confirm that name.
  • Looking at the relevant website, if one has been identified explicitly or as the individual’s email domain.

If your business receives inquiries from prospective customers or clients, you should consider implementing similar KYC procedures.

Check out other posts about scams.

Photo by Etienne Martin on Unsplash

Dana H. Shultz, Attorney at Law +1 510-547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.