Trading Partner Changed Their Bank Account, Should KYC be Re-done?

​One day, a textile product trading company received a phone call from one of its suppliers: the caller mentioned that their factory was relocated, and their bank account was changed. The supplier asked to wire the payable balance to their new bank account. The CFO of this trading company recalled that he read an article about a similar case in which the subject company was caught in trouble because they wired money into the trading partner’s new bank account. What should the CFO do in this case?

The first thing came to the CFO’s mind was the principle of KYC (Know Your Customer): if there is a major change of a trading partner, then the KYC process must be re-executed to ensure that compliance is satisfied.
 
Without the re-launch of KYC process, the CFO might not know whether:

• the person who phoned in was still working or representing the existing supplier.
• the supplier’s shareholding structure might be changed. The new factory location might or might not belong to the existing supplier.
• the new bank account holder was the existing supplier, and not someone else.

 
Since the trading company had been a long-term customer of iQor-RMS, he called iQor-RMS for advice. The CFO was immediately ensured that he had all the reasons to worry because iQor-RMS had handled a number of similar dispute cases.
 
The iQor-RMS Advisor quickly put together a scenario that the trading company had a trading contract with the existing supplier, and the payable balance should be wired into the existing bank account. Without re-doing KYC and after paying to the new bank account, the existing supplier might chase after the trading company if the new bank account was not owned by the existing supplier. Also, if the supplier changed its shareholders, and potentially its key management personnel, then the trading company needed to reconsider their trading relationship.
 
As for the KYC check, iQor-RMS suggested the CFO to do the following:

1. Got a Collectability Report of the supplier in which the CFO would see its latest shareholding structure, registration changes, beneficiary ownership, financial statements of the last 2 years, litigation records, import & export status, and credit related intelligence, etc. The site visit investigation option would provide pictures of the new factory.
2. Asked the supplier for proof of the new bank account ownership.

 
After the KYC review, the CFO found that the supplier was trying to expand its operations, using the old factory for domestic market, and the new factory for overseas market. There was no shareholder change in the supplier’s company registration, and the new bank account was legitimate. The trading company was happy to have a steadier supply from this supplier.

Lessons to learn:
 
You never know what risks you are facing to if you don’t conduct your KYC review. KYC’s cost is low compared to the cost you may anticipate in a dispute.