Better Data, Better Business: Combat Identity-Related Fraud With the LEI
Economic fraud goes hand in hand with identity-related crime. In an increasingly complex world, accessible, trustworthy, and transparent data is the foundation upon which we can combat illicit finance. Clare Rowley at GLEIF examines the importance of secure and reliable identities for solving a wide range of problems currently inhibiting trade flows related to fraud.
Author: Clare Rowley
Date: 2024-05-10
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The global economy is wrestling with never-before-seen levels of identity-related fraud. Cybercrime costs in the United States reached an estimated 320 billion U.S. dollars as of 2023, according to Statista. Between 2017 and 2023, this figure has seen a significant increase of over 300 billion U.S. dollars. According to the latest estimates, this dynamic will continue in upcoming years, reaching approximately 1.82 trillion U.S. dollars in cybercrime costs by 2028. This increase in digital crime is causing substantial financial damage globally and destroying vital trust between counterparty organizations, particularly those operating across borders and legal jurisdictions.
In a world facing unprecedented digital crime, secure, reliable, and globally recognized organizational identities are a vital prerequisite and a foundation for prospering global trade. Data quality is the bedrock of trust and compliance in the international business sphere. Yet, for this data to deliver on its potential, it must be trustworthy, easily accessible, and accurate.
This is where the Legal Entity Identifier (LEI) comes in.
The Legal Entity Identifier (LEI) is the only global solution providing organizations with reliable data to unambiguously identify companies and corporate structures worldwide. As a universal ISO identification standard and a code that connects entities to crucial reference information, including ownership structure, the Legal Entity Identifier (LEI) tackles data reconciliation problems across borders and promotes an interoperable identity standard. With more than 2.5 million entities and 400,000 relationships, the openly available LEI dataset provides crucial information about the names, locations, and legal forms of subsidiaries, parents, and company holdings. LEI data helps businesses understand who they’re dealing with.
The Global LEI System creates a never-before-seen level of transparency in party identification. It lays the groundwork for more informed business decisions, fosters growth, encourages collaborations, and deters financial crimes. By addressing inconsistencies in identifying entities, connecting a greater range of datasets, and capturing entity relationships and ownership structures, the LEI can support improved risk management and enable enhanced monitoring, reporting, and analytics.
Providing a deep understanding of corporate legal complexity to identify any challenges
The power of the LEI is underpinned by the quality and precision of its data. A new initiative, the Policy Conformity Flag, designed to encourage all LEI-holding entities to declare and maintain all requested data in the LEI record, is poised to further drive transparency on the completeness and accuracy of reference data within the LEI record. LEIs help businesses identify entities across borders and jurisdictions quickly and easily, making global trade safer and more transparent.
The Policy Conformity Flag is a compelling opportunity to encourage and promote enhanced transparency in transactions via the current and complete reporting by legal entities of open, standardized, and high-quality legal entity reference data available to users and maximizing the transparency and trust among market participants.
Entities with current and complete information demonstrate their unwavering commitment to transparency by enabling closer monitoring of transaction data and supporting greater clarity in their ownership structures. Their conforming status also signals to partners and other organizations that their LEI can reliably streamline due diligence checks, onboarding, and other counterparty processes, making them easier to do business with.
An up-to-date LEI helps ensure compliance with myriad international regulations
A legal entity with an LEI also benefits from being fast-tracked to regulatory compliance. A diverse and growing number of regulatory frameworks have already mandated its use globally. Offering a clear-cut and accessible profile of each entity can shortcut myriad due diligence processes, many of which are routinely hampered by basic questions like 'Who is who?' and 'Who owns whom?'
For businesses, simplifying and streamlining risk management, compliance, Know Your Customer and Know Your Business processes and client relationship management will result in a faster and smoother path to growth.
LEI to facilitate faster and simpler transactions and partnerships
The effectiveness of LEI data is dependent on its timeliness and accuracy, making the LEI renewal process crucial. Delayed renewals can lead to many issues, including data reliability concerns and the potential for non-compliance penalties.
The quality of data is the bedrock of trust and compliance in the international business sphere. This call for exemplary quality in organizational data is not merely a play for greater compliance. It is a gateway to untapped global growth. It invites legal entities everywhere to unite for an open, transparent, and trustworthy business environment. Because better data means better business.
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Clare Rowley is the Head of Business Operations at the Global Legal Entity Identifier Foundation (GLEIF). Prior to working with GLEIF, Ms. Rowley worked at the United States Federal Deposit Insurance Corporation where she led technology initiatives improving bank resolution programs and contributed to research on subprime mortgages. Ms. Rowley is a CFA® charter holder and holds a MS in Predictive Analytics from Northwestern University.
