The politically exposed persons screening. A politically exposed person (or PEP) is someone who has a prominent or greater position or influence in a jurisdiction and is, therefore, more likely to be involved in money laundering, bribery, or corruption, among other things.
The Politically Exposed Persons Screening
PEP screening is used to detect and investigate any PEPs discovered in an organization. Other high-risk clients who have specific positions in an onboarding organization are also identified.
If an organization is an onboarding PEP, further due diligence efforts must be made to ensure that ML/TF risks are reduced or the PEP is not onboarded in the case of a detected risk. When PEPs are onboarded, they are recognized as high-risk clients. PEPs are not categorized as criminals, but their higher risk exposure compels financial institutions to adopt additional AML/CFT steps when establishing business connections with them.
Politically Exposed Politicians
Politically exposed politicians or public officials hold high-profile jobs. They are particularly vulnerable to money laundering and terrorism funding because of their status. It’s tough to compile a list of politically exposed people because the criteria vary in every country. The FATF also releases PEP ideas on a regular basis, making building a complete PEP «list» more difficult.
The FATF’s PEP categorization, on the other hand, is used by the majority of nations, and it includes: Politically exposed current or former government personnel may be appointed to employment in domestic or foreign governments. Officials from the executive, legislative, administrative, military, and judicial departments, both elected and non-elected, may be included.
Financial authorities demand PEP screening in AML systems. To implement the AML measures and controls for the PEP identification and monitoring, the organization must be aware of the EDD process and requirements, to ensure that detailed scrutiny is performed for the identification and verification of the PEPs.
As part of the EDD measures, adverse media checks are performed to identify and verify PEPs and their possible relationships with terrorists or related organizations. Adverse media or negative news may be defined as any bad information about any person or group of persons which is published, disclosed, or discovered on any medium which is available and accessible to the public. Negative new screening is an essential part of the customer due to the diligence process for an organization like financial and non-financial institutions.
Sometimes, some news is informed about a client’s engagement with any criminal and unethical activities such as money laundering or terrorist financing. Therefore, an organization needs to identify and assess the news related to money laundering, frauds or scams, on the board. This will also help assess and reassess the client risk profile and protect the Organization from reputational damage. Working with reputational damage companies is not allowed in a jurisdiction as per the law.
There is a risk that customers of the bank may be involved in any criminal activity or have a relationship with criminal groups, including money launders. This risk is further increased for high-risk category customers of the bank. Therefore, banks perform regular and ongoing monitoring of transactions and activities of customers, including searching the names and profiles of customers in negative news or various adverse media portals.
An appropriate adverse media check may highlight or expose a bank’s customer’s involvement in prohibited or illegal activities such as money laundering, terrorist financing, fraud, organized crime, racketeering, and so on.
What Is PEP Screening?
As part of a robust Anti-Money Laundering and Know Your Customer program PEP screening is a process that identifies and conducts customer due diligence on any politically exposed person.
PEP screening during the account opening process assists in determining whether or not an applicant is a PEP and the potential level of risk associated with doing business with that person. An account may still be opened depending on the jurisdiction and the risk profile of the financial institution, but careful analysis and enhanced due diligence are required.
Accounts should be monitored for PEP status on an ongoing basis, just like sanctions screening. Because of the ever-changing nature of politics and the people who wield power, PEP lists are constantly evolving. Methods for keeping PEP status up to date in a systematic manner aid in the effectiveness of AML/KYC programs.
Why It Is Important To Screen Against PEPs And Sanctions Lists?
Transactions with customers on PEPs and sanctions lists put organizations at risk:
- Noncompliance with watch list screening may result in steep regulatory fines for a FI.
- Failure to detect sanctions evasion, bad actors, or a PEP involved in organized crime may result in reputational harm.
Standard compliance procedures do not usually involve «high-risk individuals and entities,» but running watchlist checks that look for occurrences on PEP or other sanction lists can help protect your organization.
PEP And Sanction Screening Best Practices
Integrate with a diverse set of high-quality, trustworthy data sources
To ensure that you are identifying sanctions from all relevant bodies, the data you screen your customers against must be comprehensive, up to date, and ideally consolidated with other watch list databases.
Use a risk-based approach
When it comes to PEPs, the FATF advises taking a risk-based approach. An internal risk assessment, for example, will assist in defining what constitutes politically exposed in accordance with a FI’s policies and risk appetite.
Financial institutions can also implement AML/KYC solutions designed to help mitigate AML risks to improve the effectiveness of sanctions and PEP screening processes, as well as automate much of the associated workload.
To help screen customers against sanctions and PEP databases, a single API-led solution can pull information from multiple sources. FIs can also reduce false positives and increase screening efficiencies by utilizing cutting-edge technologies such as artificial intelligence and machine learning.