A background check is the process of verifying and investigating an individual’s or entity’s history, reputation and risk profile to ensure they meet legal, regulatory and business requirements. They are used to confirm the identity, integrity and suitability of customers, beneficial owners, vendors or third parties before or during a business relationship in Know Your Customer (KYC), Anti-Money Laundering (AML) and compliance processes and procedures. 

A background check typically involves reviewing a combination of public records, corporate registries, sanctions lists, politically exposed persons (PEP) databases, adverse media reports and financial crime watchlists. It may also include checking for past involvement in legal disputes, criminal proceedings, regulatory violations or reputational risks.

Conducting thorough background checks helps financial institutions and regulated entities identify potential red flags such as connections to money laundering, bribery, corruption, fraud or other illicit activities. Background checks are a key part of Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD) processes, especially when onboarding higher-risk customers or dealing with jurisdictions known for elevated financial crime risk.