What are KYC and KYB?
Know Your Customer and Know Your Business: verification of identity, ownership and sanctions status of a counterparty before contracting. A cargo can be frozen mid-voyage over a party that should never have entered the chain.
Key points
- KYC is people; KYB is the entity and its ownership.
- Sanctions attach to cargoes and vessels, not just to companies.
- The loss falls on whoever holds the cargo, not whoever introduced the problem.
At a glance
| KYC | Identity and status of individuals |
|---|---|
| KYB | Registration, ownership chain, ultimate beneficial owners |
| Also screened | Vessel, flag, ports, sanctions and PEP lists |
| Re-screening | At intervals, not once at onboarding |
| Why banks insist | Their own sanctions and AML obligations |
What the checks cover
Know Your Customer and Know Your Business are the due diligence processes performed on a counterparty before contracting. KYC establishes who the individuals are; KYB establishes what the entity is — its registration, its ownership chain and its ultimate beneficial owners.
Both include sanctions and politically exposed person screening, and increasingly checks on the vessel, the flag and the ports involved rather than on the company alone.
Why it is not a formality
Sanctions regimes attach to cargoes and vessels, not just to companies. A shipment can be frozen in transit, a vessel denied entry, or a bank refuse to process payment, because of a party several steps removed from the contract.
Unwinding that is slow and expensive, and the loss usually falls on whoever is holding the cargo rather than on whoever introduced the problem. That asymmetry is the real reason to do the work before contracting.
What good practice looks like
Verify the corporate chain to ultimate beneficial owner rather than stopping at the trading entity, screen against the relevant sanctions lists for every jurisdiction the trade touches, and re-screen at intervals rather than once at onboarding.
Banks will require this regardless. A financing bank that cannot satisfy its own compliance will decline the transaction, so counterparty diligence is a precondition for the credit as much as for the trade.
Frequently asked questions
- What is the difference between KYC and KYB?
- KYC verifies individuals — identity and status. KYB verifies the business — registration, ownership structure and ultimate beneficial owners. Commodity trade needs both.
- Why do banks require KYC before financing a cargo?
- Because sanctions and anti-money-laundering obligations attach to the bank itself. If it cannot verify the parties, the vessel and the route, it will not process the payment.
- Can a cargo be frozen because of a counterparty?
- Yes. Sanctions attach to cargoes and vessels as well as companies, so a party several steps removed can cause a shipment to be detained mid-voyage.
Related terms
A bank undertaking to pay the seller once compliant documents are presented. It substitutes the bank’s credit for the buyer’s, which is why it remains the default instrument between counterparties trading together for the first time.
The largest independent inspection, testing and certification company in the world, founded in 1878 and headquartered in Geneva. In commodity trade its certificates of quality and weight are what a buyer, a bank and an insurer all rely on instead of taking the seller’s word.
The Australian body that reviews acquisitions of land and mining interests by foreign persons. Approval is routine for most commercial transactions, but foreign government investors are reviewable regardless of value and critical minerals draw closer scrutiny.
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