Know Your Customer (KYC) is critical for protecting businesses from fraud and other financial crimes, including risks tied to cryptocurrency activity. Strong KYC programs look past the paperwork to uncover details and fill in gaps where fraud tends to hide. Identifying risk signals early enables compliance teams to make more informed decisions and take action before criminal activity can cause significant harm.
This guide breaks down seven best practices that help teams reduce risk exposure while staying aligned with changing regulations. It also explores where open-source intelligence (OSINT) and ShadowDragon’s platform helps fill in the blind spots left by traditional KYC workflows.
What a High-Performing KYC Program Must Do
A strong KYC program gives compliance teams confidence that the person opening an account or conducting a transaction is real. It also helps teams detect potential warning signs of fraud or other financial crimes early.
Small gaps, such as inconsistent documents or poor record-keeping, can signal larger issues. Identifying these potential red flags enables teams to decide when to reject or escalate a case.
The goal is to reduce a business’s exposure to money laundering and fraud. Criminal networks hide behind layers of shell companies and fake identities. Robust KYC processes keep these cases out of your business’s pipeline.
Every step should have a complete audit trail, including:
- What was verified
- Who verified it
- When it was verified
A strong audit trail helps protect a business if regulators ask questions later.
Regulations can change frequently. The Financial Action Task Force (FATF) periodically updates its guidance. Customer due diligence (CDD) and enhanced due diligence (EDD) standards may change.
The European Union’s Anti-Money Laundering Directives (AMLD) and the UK’s Financial Conduct Authority (FCA) regulations are also updated periodically. A high-performing KYC program remains aligned with these changes and supports KYC remediation when issues arise, ensuring that compliance teams never fall behind.
Below, we’ll review seven KYC best practices to keep your program on track and reduce risks.
1. Standardize and Document Your CIP/CDD Framework
Start with clear documentation rules for your Customer Identification Program (CIP) and CDD processes. Spell out what’s required for identity checks and business checks. Document what counts as acceptable proof to remove guesswork and keep reviews consistent.
Build simple decision trees for each risk tier to keep KYC integration consistent across systems and teams. Low-risk customers may undergo only the basic requirements, while medium-risk customers get a closer look. High-risk customers are investigated more thoroughly. Compliance teams can move faster when the steps and decision-making rules are established in advance.
Compliance teams should know what signs to look for to indicate when a case requires EDD, such as:
- Complex business ownership
- High-risk industries
- Cross-border activity
- Gaps in filings
ShadowDragon’s OSINT tools help teams verify what the customer claims. For instance, Horizon™ Identity starts from a single data point, such as a username or email address, to build a complete identity profile. Horizon™ Identity surfaces information such as:
- Associated aliases
- Geolocation indicators
- Behavioral data
ShadowDragon Horizon™ helps compliance teams connect the dots with link analysis and visualizations, revealing potential red flags such as:
- Sanctions exposure
- Adverse media
- Synthetic profiles
- Mismatched records
- A lack of online activity history
- Indirect risk relationships
- Unusual online activity
These OSINT tools enrich static KYC information with context, giving analysts a broader view of potential risks before making decisions about a case.
2. Use Risk-Based KYC to Prioritize High-Risk Customers
Risk-based KYC helps compliance teams focus their attention on the cases with the greatest risk. Start by sorting customers into clear risk tiers (low, medium, high), with each risk tier receiving a pre-determined level of review.
Low-risk customers should move through the KYC verification process with minimal friction. High-risk customers require slower handling with greater attention to detail. This balance keeps the workflow steady without exposing the business to unnecessary risk or creating unnecessary friction that can frustrate customers.
Identify signals that can shape risk, such as:
- Negative news
- Politically exposed persons (PEP) status (individuals with public-facing roles who are at greater risk of corruption due to their perceived power or influence)
- Regional concerns
These and other factors influence how a case should be handled and help compliance teams justify their decisions later. ShadowDragon’s OSINT tools strengthen this process by surfacing OSINT signals that feed into scoring, such as data breach exposure or connections to suspected criminal networks.
3. Balance Automated and Manual Verification of Documents and Sources
Strong document and source verification requires a balance of automated verification and manual, human review. Automated checks can detect tampering and formatting issues while minimizing human error. Manual reviews can recognize unusual details that machines may miss.
Using a combination of automated and manual reviews reduces blind spots. Compliance teams should review details such as:
- Metadata
- Dates
- Document layout
- Image quality
Small inconsistencies often indicate a larger problem, so analysts should investigate any anomalies further.
4. Strengthen Sanctions and PEP Screening
Sanctions checks should span every major list, including:
- Office of Foreign Assets Control (OFAC)
- United Nations Security Council Consolidated List
- European Union Sanctions List
- United Kingdom Sanctions List
It’s also worth checking the FATF’s black and grey Lists. The black list includes high-risk jurisdictions subject to a call for action, while the grey list includes jurisdictions under increased monitoring.
Compliance teams should expand politically exposed persons (PEP) screening beyond the individual. A politically exposed person is an individual who holds a public office, such as a government official, or holds a public role, such as a high-profile executive. Because of their perceived power and influence, they’re at a greater risk of corruption. For example, PEPs may be targeted for bribery schemes.
However, relatives and close associates of PEPs can carry the same risks. PEP checks should include these close ties as well.
Adverse media screening can fill in the details that formal lists don’t reveal. Compliance teams can use tools like fuzzy matching to capture variations in spelling and translation. Looking into old cases and local reports can help identify potential risks.
ShadowDragon Horizon™ surfaces signals such as:
- Media coverage
- Social activity
- Network ties
These signals help teams understand whether a customer’s PEP or fraud exposure is higher or lower than static documents suggest.
5. Implement Continuous Monitoring
A customer’s risk profile continues to evolve after onboarding. Compliance teams should monitor changes in behavior and overall risk posture. Sudden shifts in activity can indicate potential risk, so teams should treat these signals as early warnings.
Teams should establish review cycles based on risk tiers. Low-risk customers may require fewer touchpoints or less frequent reviews. For high-risk customers, teams should monitor more data points and sources and review the customer’s risk profile more frequently. Automating this process ensures a consistent review schedule and prevents coverage gaps.
Compliance teams should remain alert to new sanctions hits or negative media coverage. These events often appear without warning, so a customer who was deemed low-risk at onboarding can become high-risk overnight.
Horizon™ Monitor helps compliance teams track these changes. It can surface details such as:
- New accounts linked to the customer
- New links to businesses
- Leaked data
- Threat behavior
- Fresh reporting
Staying on top of these changes with automated alerts gives teams time to react before exposure grows.
6. Maintain Strong Data Controls and Audit Trails
A strong KYC program relies on clean records. Every action should be timestamped, and data should be stored in secure systems to ensure data integrity and availability. Clear records protect the team if questions arise later.
Teams should apply the principle of least privilege, ensuring that team members can access only the minimum information required to complete a task, and role-based access control (RBAC) to ensure that sensitive information is available only to those who need it. These steps limit internal risk.
Compliance teams should continuously plan for audits. Internal and external reviewers will want to see how decisions were made, and they’ll look for proof that each step followed policy. Strong governance helps to ensure reviews and audits run smoothly.
ShadowDragon Horizon™ preserves the investigative path, including source-attributed OSINT data with links back to original data sources and timestamped intelligence, creating a defensible audit trail that withstands regulatory scrutiny.
7. Use OSINT to Eliminate Blind Spots
Traditional KYC tools and processes focus only on documents and structured data. These processes can miss behavioral signals and social patterns. They can also overlook operational clues and network ties. Fraud groups and criminal networks rely on these visibility gaps.
OSINT fills in what the paperwork doesn’t show. It helps to:
- Confirm the customer’s real identity
- Expose synthetic personas
- Reveal patterns that link individuals to larger fraud rings
- Reveal shell companies or complex ownership structures that mask ultimate beneficial owners (UBOs) or certain business activities
ShadowDragon Horizon™ maps an individual’s digital activity and identity traits. It highlights links that may point to organized fraud and helps analysts see the full picture before they approve a case.
Horizon™ Monitor goes a step further, tracking public information sources to surface changes over time. It sends alerts when new links or events appear and shows historical connections that are easy to miss in a one-time review.
Improve KYC Outcomes with ShadowDragon
A solid KYC program keeps bad actors out and protects the business from mistakes that are easy to miss in day-to-day work. Static documents tell part of the story, but real risk often hides in weak identities and opaque ownership structures that slip past basic checks.
ShadowDragon’s OSINT tools help close those gaps. Horizon™ Identity builds identity profiles, and Horizon™ uncovers hidden ties and shows whether a customer’s story aligns with their real-world activity. Horizon™ Monitor keeps watch after onboarding and flags new risks the moment they surface. These tools give compliance teams a clearer view of the people and companies they do business with, supporting better decisions and reducing risk exposure. Together, they help build a KYC program that stands up to audits and keeps pace with changing regulations. Contact the ShadowDragon team for a demo to explore how OSINT can enhance your KYC program.
