To ensure compliance with AML/CFT laws in the USA, businesses need to conduct a know your customer process. Though it’s not directed at direct selling businesses, it’s advisable to perform KYC for distributors.
Direct selling KYC safeguards businesses from exploitation, protects customers against fraud, and keeps regulatory authorities assured of compliance.
The above infographic explains the complete direct selling KYC process, which is discussed in detail. here:
Step 1: Start with a well-structured KYC form that captures all essential details, such as full legal name, date of birth, residential address, tax identification number, and banking details.
Step 2: Collect additional license numbers depending upon the business niche. For instance, insurance MLM businesses should collect valid state insurance license numbers.
Step 3: Collect relevant documents and match them against the information provided by the distributor in the direct selling KYC form, using digital modules powered by OCR (Optical Character Recognition).
Step 4: The KYC analyst should manually check if the information provided and get them corrected if there’s any mismatch. Deny onboarding if the requested information is not provided.
Step 5: The documents should undergo a strict validation process, where machine learning algorithms are used to check for authenticity with techniques such as hologram detection, tamper recognition, and forensic analysis to identify counterfeit documents.
Step 6: Cross-referencing with government registries and authoritative databases adds another layer of security, ensuring the submitted documents are legitimate and compliant.
Step 7: Every distributor must be screened against global and regional watchlists, such as OFAC SDN List, UNSC Sanctions List, and FinCEN Advisories.
Step 8: Inform regulatory bodies if you find a match in any of the watchlists, or move forward with risk scoring if there’s no match.
Step 9: Risk scoring helps you check that the distributor comes under your risk appetite. For instance, an applicant with a criminal record unrelated to business activities may be onboarded but flagged as high-risk.
Step 10: Once a distributor successfully clears the direct selling KYC process, issue them a unique identifier within your MLM system, similar to an employee ID.
Step 11: Keep track of abnormal payout volumes, bulk recruitment beyond the normal threshold, and similar red flags.
Step 12: Periodic re-KYC (ideally once every 12 months) ensures expired documents are updated and the distributor’s status remains valid.
You can follow MLM KYC best practices throughout the process, such as implementing automation to reduce errors, maintaining audit-ready logs, ensuring data encryption for security, conducting regular employee training, and updating your compliance measures in line with changing regulations.
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