B2B Supplier Risk in Focus as FinCEN’s Transparency Act Back on Track

In today’s sprawling B2B environment it’s not just the goods and services that need tracking — it’s the companies themselves.

As businesses stretch their procurement networks across borders and regions, hopping from one supplier to another, a new kind of scrutiny is settling in: know your business (KYB) and supplier risk are becoming increasingly critical issues, especially with heightened regulatory scrutiny from the Financial Crimes Enforcement Network (FinCEN), which on Tuesday (Feb. 18) saw the runway cleared to start enforcing the Corporate Transparency Act (CTA).

It’s no longer enough to know what you’re buying. Now, you have to know who you’re buying from, who they’re buying from and whether anyone along that chain is a regulatory nightmare waiting to happen. Today’s businesses are facing a need to dig deeper into their supply chains, not just to meet regulatory requirements but to avoid potentially devastating operational disruptions.

After all, news also broke Monday (Feb. 17) that corporate delinquencies are at the highest rate they’ve reached in eight years; while luxury retailer Saks last week (Feb. 14) reportedly warned its suppliers that payments will continue to be overdue.

Against this dynamic operational backdrop, knowing that your business partner is legit in the eyes of regulators and can meet their contractually obligated payments is becoming increasingly paramount to survival.

Read also: Tariff Turmoil Puts Supplier Risk, Supply Chain Management Under Microscope

Managing B2B Supplier Risk by Automating Transparency

FinCEN’s push for transparency, particularly with the Corporate Transparency Act, is already altering the compliance landscape. This dovetails directly into KYB processes, where organizations not only need to verify the legitimacy of their suppliers but also maintain robust documentation to demonstrate compliance.

The crux of the issue? Complexity. As supply chains become more intricate, the risk of exposure to fraudulent or noncompliant businesses increases. Companies need a new playbook, one that involves deeper due diligence, leveraging technology and establishing robust compliance frameworks.

The good news? Solutions are emerging. Automated KYB platforms that use artificial intelligence (AI) and machine learning are helping businesses analyze supplier risk in real time, flagging potential issues before they become full-blown crises. Financial institutions, too, are stepping up, offering enhanced due diligence services that help businesses navigate these choppy regulatory waters.

On Tuesday, Spanish company Imperia raised over 10 million euros (about $10.5 million) in a Series A funding round to fuel the international expansion of its supply chain management software that uses AI to mitigate supply chain risks.

Meanwhile, Freight Technologies last week launched a transportation management system (TMS) designed for brokers, shippers and other logistics operators working across the U.S.-Mexico-Canada Agreement (USMCA) region. The system includes compliance, customs documentation and shipment visibility for cross-border logistics.

But technology alone isn’t enough. Businesses also need to adopt a proactive compliance mindset. That means conducting regular supplier audits, implementing stringent onboarding processes and staying up to date with changing regulations.

Read more: Compliance Moved From Cost Center to Growth Engine in 2024

Balancing Speed, Convenience and Compliance

As the B2B landscape continues to expand and evolve, businesses can’t afford to take supplier risk lightly. In a world where one misstep can lead to catastrophic fallout, due diligence is no longer a “nice-to-have” — it’s a survival strategy.

“Everything’s going more cross-border and getting regulated, so tax compliance regulation is huge for new business models in new markets,” Sovos CEO Kevin Akeroyd told PYMNTS in an April interview.

Faulty cross-border payments cost merchants in the United States at least $3.8 billion in sales last year alone, according to the PYMNTS Intelligence report “Cross-Border Sales and the Challenge of Failed Payments.” Additionally, 70% of U.S. firms experienced higher rates of failed payments in cross-border sales compared to domestic sales.

The implications for businesses are profound. Not only must they allocate resources to bolster their compliance teams, but they also need to integrate KYB protocols into their broader risk management strategies. Failure to do so could mean more than just financial penalties — it could lead to loss of market share, erosion of stakeholder trust and lasting reputational damage.

Ultimately, as regulatory requirements evolve, businesses must remain agile. Establishing clear policies and procedures around supplier onboarding, monitoring and exit strategies could turn out to be crucial. Rather than a one-time check, businesses can leverage digital solutions to continuously monitor supplier risk through automated alerts and data feeds. Differentiating suppliers by risk can help allow for targeted due diligence where it matters most.

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