KYC & Due Diligence in Commodity Trading: Complete Guide

Know Your Customer (KYC) and due diligence are the foundation of safe, compliant international commodity trading. This guide covers all required documentation and verification processes.

What is KYC?

KYC (Know Your Customer) is the process of verifying the identity and legitimacy of business partners before engaging in financial transactions. In commodity trading worth millions of dollars, thorough KYC protects against:

Fraud and scams

Money laundering

Terrorist financing

Sanctions violations

Non-payment risks

Reputational damage

Required KYC Documents

1. Company Registration Documents

Certificate of Incorporation:

Official company registration certificate

Must show company legal name, registration number, date of incorporation

Issued by government registry (Companies House, SEC, etc.)

Must be current (not older than 12 months for ongoing relationships)

Certified true copy acceptable

Business License:

Trading license or business permit

Specific import/export licenses if required by jurisdiction

Tax registration certificate

Chamber of Commerce registration

Articles of Association/Bylaws:

Company structure and governance

Authorized signatories

Scope of business activities

2. Proof of Identity (Directors/Beneficial Owners)

Passport Copies:

All directors and beneficial owners (25%+ ownership)

Notarized or certified copies

Must be valid (not expired)

Photo page and signature page

Some jurisdictions require national ID in addition to passport

Proof of Address:

Utility bill (electricity, water, gas) - not older than 3 months

Bank statement - not older than 3 months

Government-issued document with address

Must match address declared in company documents

Curriculum Vitae (CV):

Professional background of key persons

Relevant trading experience

References from previous business partners

3. Financial Documents

Bank Comfort Letter (BCL):

Letter from buyer's bank confirming account existence and good standing

Confirms client has been banking with them for specified period

May indicate "sufficient funds" for contemplated transaction

Does not guarantee funds or commit bank to payment

Valid for 30-90 days typically

Bank Verification Letter:

Confirms account details (account number, SWIFT code, bank address)

Verifies authorized signatories on account

May include average account balance (without specific amounts)

Financial Statements:

Audited financial statements (last 2 years)

Balance sheet, income statement, cash flow statement

Signed by certified accountant

Shows company's financial health and capacity

Proof of Funds (POF):

Bank statement showing available funds

Required for high-value transactions

May require bank officer signature and stamp

Screenshots not acceptable - must be official bank document

Ready, Willing, and Able (RWA) Letter:

Bank letter confirming client has funds and willingness to transact

More detailed than BCL

Often includes transaction-specific details

Typically valid 30-60 days

4. Tax and Compliance Documents

Tax Identification Number (TIN):

VAT number (if applicable)

Corporate tax registration

Required for international transactions and customs

Tax Clearance Certificate:

Proof of tax compliance

Shows no outstanding tax liabilities

Required in some jurisdictions

Anti-Money Laundering (AML) Declaration:

Signed statement of compliance with AML regulations

Source of funds declaration

Beneficial ownership disclosure

Sanctions Screening:

Confirmation not on OFAC, EU, UN sanctions lists

PEP (Politically Exposed Person) declaration

Some intermediaries perform automated screening

5. Trade-Specific Documents

Import/Export License:

Required for certain commodities (fertilizers in some countries)

Specific permits for chemical products

Phytosanitary certificates (for agricultural products)

Previous Trade References:

Letters from past suppliers/buyers

Proof of previous successful commodity transactions

SGS or similar inspection reports from past deals

Company Profile:

Detailed company background

Nature of business

Years in operation

Key personnel

Contact information (phone, email, physical address)

The KYC Verification Process

Step 1: Document Collection (1-3 days)

Client submits all required documents via secure email or document portal.

Step 2: Document Authentication (2-5 days)

Verify document authenticity

Cross-check with government registries

Verify bank details via SWIFT directory

Confirm passport validity with issuing country database

Step 3: Sanctions Screening (1 day)

Screen against OFAC SDN list (US)

EU consolidated sanctions list

UN sanctions list

Interpol databases

PEP databases

Step 4: Company Verification (2-4 days)

Verify company exists and is active

Check registered address

Confirm directors match official records

Review public records for adverse information

Step 5: Bank Verification (3-7 days)

Confirm BCL authenticity by contacting issuing bank

Verify SWIFT code

Check bank's reputation and regulatory standing

Confirm authorized signatories

Step 6: Risk Assessment (1-2 days)

Evaluate overall risk profile

Consider jurisdiction risk

Assess business legitimacy

Review any red flags

Step 7: Approval/Rejection (1 day)

Compliance officer makes final determination

If approved, client is onboarded

If rejected, client is notified (may not receive detailed reasons)

Total Timeline: 10-20 business days for complete KYC

Red Flags in KYC

Document Red Flags:

Poor quality scans or images (suggests forgery)

Inconsistent information across documents

Recently incorporated company for large transaction

P.O. Box as only address

Offshore jurisdiction with no business justification

Expired documents

Signatures don't match across documents

Behavioral Red Flags:

Reluctance to provide documents

Pressure to "skip" KYC

Offers of upfront payment to bypass verification

Evasive answers about business activities

Changes in company details during process

Representative can't answer basic questions about company

Financial Red Flags:

Bank in different country than company with no explanation

Newly opened bank account

Bank in high-risk jurisdiction

Financial statements don't match claimed transaction size

Refusal to provide bank verification

BCL from unknown or unranked bank

Business Red Flags:

No website or social media presence

No physical office address

Company activities don't match commodity being purchased

Claims of urgent "must do this week" transactions

Requests to modify standard procedures

Too-good-to-be-true prices or terms

Common KYC Failures and Solutions

Issue 1: Incomplete Documents

Solution: Provide checklist upfront; use document portal with clear requirements

Issue 2: Expired Bank Comfort Letter

Solution: Request new BCL before expiry; many banks issue with 60-90 day validity

Issue 3: Offshore Company Structure

Solution: Provide additional documentation explaining business structure; demonstrate legitimate business purpose

Issue 4: New Company

Solution: Director/owner's experience and references; joint venture documentation; parent company guarantee

Issue 5: Bank in Different Jurisdiction

Solution: Explanation letter; correspondent banking relationship documentation; company's international operations evidence

Enhanced Due Diligence (EDD)

For high-risk situations, Enhanced Due Diligence may include:

On-Site Visits:

Physical verification of office and operations

Meeting with management

Inspection of facilities

Third-Party Reports:

Dun & Bradstreet business reports

Credit rating agency reports

Industry reputation checks

Ongoing Monitoring:

Periodic KYC updates (annually)

Transaction monitoring

Adverse media screening

Source of Funds Investigation:

Detailed inquiry into fund origin

Business activity evidence

Historical transaction records

Data Protection and Confidentiality

GDPR Compliance (EU):

Lawful basis for processing personal data

Right to access, rectify, erase

Data retention limits

Breach notification requirements

Data Security Measures:

Encrypted document transmission

Secure storage with access controls

Regular security audits

Employee confidentiality agreements

Document Retention:

Minimum 5 years after relationship ends (regulatory requirement)

Some jurisdictions require 7-10 years

Secure disposal after retention period

Ongoing KYC (Periodic Updates)

KYC is not one-time; regular updates required:

Annual Updates:

Current bank comfort letter

Updated financial statements

Confirmation of no changes in ownership/directors

Renewed sanctions screening

Trigger Events Requiring Immediate Update:

Change in ownership (25%+ stake)

Change in directors or authorized signatories

Change in bank account

Relocation of company

Material change in business activities

Adverse news or regulatory actions

Tips for Smooth KYC Process

For Buyers/Sellers:

Prepare documents in advance - Don't wait until you find a deal

Keep documents current - Update before expiry

Organize clearly - Label all documents properly

Provide certified copies - Notarized or lawyer-certified

Be responsive - Answer queries promptly

Be transparent - Explain unusual circumstances proactively

Use professional email - Company domain, not Gmail

Have backup documents - Alternative proof if primary is questioned

For Intermediaries/Traders:

Clear requirements upfront - Provide checklist before engagement

Secure document portal - Professional impression, better security

Communicate timeline - Set expectations for verification time

Professional verification - Don't skip steps under pressure

Document decisions - Maintain audit trail

Training - Keep compliance team updated on regulations

Technology - Use automated screening tools

Escalation procedures - Clear process for high-risk cases

Conclusion

Thorough KYC and due diligence protect all parties in commodity trading:

For buyers/sellers: Ensures you're dealing with legitimate partners

For intermediaries: Prevents involvement in illicit transactions

For banks: Meets regulatory obligations

For the industry: Maintains integrity and reputation

Never skip or rush KYC. The 10-20 days required for proper verification is a small price compared to the risk of fraud in million-dollar commodity transactions.

Trading with Stratoma Interchange? Our comprehensive KYC process ensures all transactions involve verified, legitimate business partners. We only work with clients who complete full KYC.

---

Keywords: KYC, know your customer, due diligence, compliance, commodity trading, bank comfort letter, trade documentation, AML, sanctions screening, verification