AML and KYC Checks in Private Deals: What Both Sides Should Expect

Anti-money laundering (AML) and know-your-customer (KYC) checks are routine in banking. In private markets they have become increasingly common too. Funds check their LPs, investors check founders, banks check companies, and everyone screens against sanctions lists.

For founders and investors, understanding what to expect makes these checks faster and less frustrating, and helps avoid the real risks they are designed to catch. This guide explains who checks whom, what is typically requested and how the rules are evolving.

1. Why AML and KYC Matter in Private Deals

• Preventing illicit money from entering companies and funds.
• Sanctions compliance. Dealing with sanctioned individuals, companies or countries can create serious legal liability.
• Reputation. Investors and companies do not want to be associated with fraud, corruption or money laundering.
• Regulatory expectations from banks, fund administrators and regulators.

2. Who Checks Whom

• Banks perform KYC on companies and funds when opening accounts, including identifying beneficial owners. See startup banking.
• Fund managers and administrators check LPs before accepting commitments.
• Investors check founders and companies during due diligence.
• Companies may check investors, especially in cross-border rounds or regulated sectors.
• Platforms and SPV providers run checks on participants. See SPVs and syndicates.

3. What Is Typically Requested

From individuals

• Government-issued identification and proof of address.
• Source of funds and, for larger investments, source of wealth.
• Accredited investor verification where relevant. See accredited investor qualifications.

From entities

• Formation documents and ownership structure.
• Identification of beneficial owners, often those holding 25% or more, and controlling persons.
• Information on directors and authorised signatories.

Screening

• Sanctions lists, such as those maintained by the US Office of Foreign Assets Control (OFAC).
• Politically exposed persons (PEPs), who may require enhanced checks.
• Adverse media and background checks.

4. How the Rules Are Evolving

• Investment advisers. In 2024, the US Financial Crimes Enforcement Network (FinCEN) adopted a rule extending AML programme requirements to many investment advisers. Its effective date has since been postponed and the rule is being reconsidered, but many managers already run AML checks as good practice.
• Beneficial ownership reporting. The Corporate Transparency Act created federal beneficial ownership reporting, but in 2025 FinCEN exempted US companies and US persons, leaving the requirement mainly for certain foreign companies registered in the US.
• International rules. The EU, UK and other jurisdictions maintain their own AML regimes, which apply to funds and advisers operating there.

5. What Founders Should Expect and Prepare

• Identification and ownership information for founders and the company.
• A clear cap table showing beneficial owners. See what a cap table is.
• Questions about customers, suppliers or operations in sanctioned or high-risk countries.
• Background checks on key executives. See founder reference checks.

6. What Investors Should Expect and Prepare

• Identification, source-of-funds and ownership documents for every commitment.
• Tax forms, such as W-9 or W-8 forms.
• Repeat checks for each fund or SPV, unless information can be reused.

7. Red Flags

• Unwillingness to disclose beneficial owners.
• Complex ownership structures without a clear reason.
• Unexplained sources of funds or payments from unrelated third parties.
• Links to sanctioned persons or high-risk jurisdictions.
• Pressure to skip or rush checks.

Frequently Asked Questions

Why do investors need to prove their source of funds?

To help funds, companies and banks confirm the money is legitimate and not linked to crime or sanctions.

Do startups need AML programmes?

Most startups do not need formal AML programmes unless they operate in regulated sectors such as payments or financial services, but they should cooperate with checks and screen for sanctions risks.

What happens if an investor fails KYC?

The investment is usually declined. Accepting money from sanctioned or unverified sources can create serious legal and reputational risk.

Are these checks the same in every country?

No. Requirements vary by jurisdiction, investor type and the institutions involved.

The Bottom Line

AML and KYC checks are now a normal part of private deals. Founders and investors who prepare identification, ownership and source-of-funds information in advance make closings faster, while the checks themselves protect everyone from legal, sanctions and reputational risk.

Global Capital Network connects founders and investors through our events and investor network. Get in touch to learn more.

This article is general information, not legal or compliance advice. AML rules vary and change; consult specialist advisers.