Business Audit Shortfalls Before 2010 and Their Consequences

When transparency was not a norm: KYB breaches before 2010

Before the introduction of European directives strengthening KYB compliance, the control of partner companies was largely insufficient. Mechanisms to combat fraud and money laundering suffered from a lack of tools, regulations and access to legal information.

An environment favorable to shell companies

Criminal enterprises took full advantage of the situation:

• Simple registration in opaque jurisdictions
• Absence of obligation to disclose beneficial owners
• Manipulable documents and lack of automatic checks
• Involuntary risk taking by bona fide businesses

Emerging financial platforms, neobanks, and digital services have been particularly exposed to the risks of corporate identity theft and document fraud.

Mainly manual due diligence

The controls were based on human research, which was often incomplete:

• Limited access to official databases
• Long and expensive checks
• Lack of consistency in document validation
• Poor ability to detect anomalies

As a result, major financial scandals have revealed the extent of breaches in AML compliance, pushing regulators to strengthen the regulatory framework.

The impetus for modern KYB regulation

The European institutions then began to develop policies aimed at:

• Business transparency
• Accountability of financial actors
• Identifying risks as early as B2B onboarding

This transition marks the beginning of a profound transformation process that continues to this day.