Why Tariffs Matter to Fraud and Risk Teams: A 2025 KYB Wake-Up Call

Tariffs are back in headlines for 2025, mostly tied to geopolitics and inflation. Still, there’s a direct impact that fraud and compliance teams can’t ignore: how shifting trade policy affects KYB and business risk.

Tariffs aren’t just import taxes. They trigger changes across operations. For banks, fintechs, lenders, and marketplaces, those changes affect how you assess legitimacy, risk, and exposure.

FinCEN hasn’t linked tariffs to KYB directly, but the message from regulators is clear: KYB matters more when the market is shifting fast. That hasn’t changed, but applying it thoroughly matters more in today’s environment.

The new tariffs – like the 10% blanket rate and country-specific duties – are already shaking up supply chains. That leads to faster business pivots, more new vendors, and increased risk of onboarding disreputable or noncompliant companies. Many firms are turning to tech to manage this risk and stay compliant.

Under FinCEN’s Customer Due Diligence Rule, financial institutions still need to identify and verify beneficial owners of legal entity customers. That hasn’t changed, but the need to apply that rule carefully has grown with environmental shifts.

Recent Studies Reflect Reduced Hiring, Operational Costs Increase, Lower Small Business Confidence, and Higher Prices for Consumers Following Tariffs

A recent report from the Joint Economic Committee notes that around 35 million U.S. small businesses are dealing with higher costs and more operational strain. The report went on to highlight that the uncertainty and higher costs caused by tariffs are beginning to force many small business owners to make difficult choices about layoffs, price hikes, and even whether they can keep their doors open. For instance:

• 30% of small business owners said they plan to raise prices – the highest rate in a year.
• Small firms (under 10 employees) have lost 366,400 jobs since January (a 3% drop).
• Five of twelve Fed districts report weakening manufacturing.

From HSBC:

A survey conducted by HSBC found that:

• 72% of companies are already seeing cost increases from tariffs
• 77% expect further increases by year-end

HSBC attributes this to:

• New duties on firms that were previously exempt
• Increased competition for low-cost suppliers

From NFIB:

The National Federation of Independent Business (NFIB) April survey of 1,000+ small business owners found:

• Optimism declined by 1.6 points, dropping to 95.8
• This is the second straight month the index has stayed below the 51-year average of 98
• The number of owners expecting real sales volume to rise fell by 4 points
• It’s the fourth consecutive month that real sales expectations have declined

From PYMNTS Intelligence:

A PYMNTS survey showed:

• 7% of SMBs said it’s “slightly or not at all likely” they’ll survive the next two years due to higher tariff-driven costs
• 17% said it’s only “somewhat likely” they’ll survive

These examples underscore the importance of robust Know Your Business (KYB) practices during business onboarding. Understanding a company’s exposure to international trade and tariffs can help mitigate risks associated with sudden policy changes.

Supply Chain Shakeups Drive KYB Urgency

One of the more immediate effects of the tariff changes has been rapid supplier turnover. As tariffs make certain goods more expensive, U.S. businesses are shifting to alternative suppliers, often in countries with fewer trade restrictions. That means lenders and payment platforms are onboarding new businesses at a higher velocity – sometimes with less scrutiny.

Fraud and compliance teams have to be prepared to:

• Reassess risk on newly onboarded businesses
• Confirm suppliers aren’t shell entities created to dodge tariffs
• Validate that the business operates where it claims
• Verify ultimate beneficial owners (UBOs) associated with the business

Failure to identify these red flags could mean facilitating illicit trade or dealing with companies engaged in customs fraud – both of which come with regulatory and reputational consequences.

Industries Most Likely to Feel the Tariff Squeeze

While tariffs affect nearly every corner of the U.S. economy, certain industries face disproportionate challenges, carrying greater KYB-related fraud and compliance risks. For fraud and compliance teams, knowing which sectors are under pressure can help prioritize risk monitoring and onboarding diligence.

1. Consumer Electronics & Semiconductors

Tariffs on Chinese-made electronics, components, and chips directly impact the hardware supply chain. U.S.-based electronics companies often work with international suppliers or contract manufacturers, many of whom shift operations or form shell entities to skirt tariff costs. Fraudulent vendor identities, falsified origin documentation, or intermediary shell businesses are all potential vectors of abuse in this sector.

Why it matters for KYB: Rapid supplier churn and reliance on overseas manufacturing introduce increased risks of onboarding synthetic or misrepresented businesses.

2. Automotive & Auto Parts

With the U.S. implementing new tariffs on Chinese electric vehicles and a range of parts (batteries, tires, steel), automakers and parts distributors are scrambling to reroute supply chains. This creates an opening for bad actors to pose as alternative parts vendors or logistics providers, especially in aftermarket or gray market channels.

Why it matters for KYB: Auto supply chains are long and global. As legitimate suppliers back out or raise prices, riskier businesses may fill the gap, often with incomplete or opaque business histories.

3. Textiles, Apparel & Footwear

Historically impacted by U.S.-China trade tensions, this sector is again under pressure. Many fashion and apparel companies rely on overseas manufacturers, and in response to tariffs, are sourcing from newer vendors in regions like Southeast Asia and Latin America. This opens the door for lesser-known, unverified entities to enter the market.

Why it matters for KYB: Fast onboarding for fashion season cycles leaves little time for thorough due diligence, making it easier for shell or pop-up businesses to slip in.

4. Renewable Energy & Solar Equipment

Recent tariff expansions now include solar panels and related components from Chinese firms. U.S.-based energy providers and solar installers are looking to alternative vendors, many of whom operate in opaque regulatory environments or lack transparent ownership structures.

Why it matters for KYB: Shell companies posing as alternative component distributors and fraudsters may exploit gaps in procurement diligence to divert incentive dollars or green energy funding.

5. Industrial Equipment & Machinery

From construction cranes to precision tools, tariffs on industrial equipment are driving many buyers to lesser-known suppliers. These capital-intensive purchases are now more likely to involve unfamiliar intermediaries or third-party brokers.

Why it matters for KYB: Large-dollar deals and complex transaction chains are ripe for trade fraud, invoice manipulation, and misclassification of goods to evade tariffs.

6. E-Commerce & Online Marketplaces

Retailers that depend on cross-border sellers (especially those shipping directly from Asia) face complex changes in seller behavior due to tariffs. We’ve started seeing some foreign sellers now misclassify shipments or operate through U.S.-based proxies to bypass duties.

Why it matters for KYB: Online marketplaces need to continuously vet new seller businesses and monitor for signs of merchant fraud, including misrepresented location or goods origin.

Regulatory Scrutiny Is Rising

Tariff enforcement is a top priority for U.S. Customs and Border Protection (CBP) and other agencies. Falsifying import origins or misclassifying goods can trigger civil and criminal penalties – not just for importers, but for the financial intermediaries who help fund or facilitate these transactions.

That means KYB checks need to go deeper:

• Who are the beneficial owners of the business?
• Where is the business operating from?
• What industry does the business operate in, and is that industry considered high risk?
• Is there a pattern of registration or transaction behavior that signals synthetic business fraud?
• Can it be determined if this is a synthetic business impersonating a real business through the website and social media signals?
• Is there any negative news about the business in question?
• Are there any lien and bankruptcy lookups to help assess the financial health of the business to aid in risk management?

When enforcement tightens, customer due diligence gaps widen. Now is the time for firms to proactively strengthen KYB frameworks.

Technology Can (and Should) Fill the Gaps

Traditional KYB checks – like static business lookups or tax ID validation – don’t cut it in a dynamic, tariff-pressured environment. Businesses are changing partners, structures, and behaviors faster than most manual systems can track.

That’s why fraud and compliance leaders are turning to platforms like Socure’s RiskOS, which enables:

• Real-time + automated onboarding with business and identity verification
• Passive risk scoring based on behavior, location, ownership structure, and more
• Continuous monitoring to detect changes in business status or risk profile
• Integration of third-party trade, sanctions screening, and registry data

In an era of fast-moving trade policies, perpetual KYB isn’t just smart – it’s essential.

What Good Looks Like: Proactive KYB in a Post-Tariff World

To stay ahead of risk and aligned with regulators, I recommend a few best practices:

• Implement digital KYB and continuous monitoring, not just one-time checks
• Verify beneficial ownership and cross-reference against sanctions and tariff lists
• Flag unusual registration patterns, such as a business formed days before applying for financing
• Leverage consortium intelligence (like SocureID) to detect cross-platform abuse

In an environment where trade policy can shift overnight, being able to adapt KYB strategies in real time is a competitive and compliance necessity.

Final Thoughts

Tariffs aren’t just a supply chain issue; they open new doors for fraud. So if your KYB controls aren’t keeping pace, you’ll miss the shift. The reality is that the business you approved last quarter could look very different today, and without continuous KYB, you’re flying blind. Socure’s RiskOS platform is already helping teams keep pace – linking identity and business data in real time, because in 2025, it’s not just about knowing your customer, it’s about knowing your business.