PEP Screening – Crucial for Ongoing Business
Money laundering, terrorism, and fraud crimes increasingly threaten Businesses. Financial Action Task Force recommended PEP screening to combat these illicit activities. Every country has a strict PEP screening method against money laundering, with penalties for non-compliance. A crucial PEP check is required for businesses dealing with PEP individuals and entities. Businesses use the Know Your Customer (KYC) practice to identify and verify customers against PEP list screening. Moreover, Customer Due Diligence (CDD) and ongoing monitoring helps businesses continuously PEPs even after onboarding. According to PEPs on ongoing AML regulations, businesses critically screen customers while onboarding Politically Exposed Persons Lists and Sanctioned individual lists. This approach prevents businesses from dealing with individuals potentially exposed to questionable activity or financial crime.
What are PEPs?
Politically exposed person (PEP) is a high-ranking public individual, such as a government official, executive of a state-owned company, politician, military leader, or a judge.
Why are PEPs High-Risk Individuals for a Business?
More influence means more chances to be associated with money laundering through bribery, corruption, and even terrorist financing. They have easy access to public funds, can influence government contracts or policies and increase the chances of being involved in illegal activities. Businesses interacting with PEPs take PEP screening measures to avoid any unintentional financial crime facilitation. Not all PEPs conduct crimes, but they may use their close associates to conceal their illegal acts. The PEP Compliance program provides organizations with a better understanding of assessing and monitoring the risks linked to PEPs.
Types of PEPs
The Financial Action Task Force categorizes Politically exposed Persons into three types according to AML guidance.
Foreign PEPs
These are the individuals with prominent public positions in foreign countries. Public positions may include government officials, state heads, senior politicians, judges, or own state corporations.
Domestic PEPs
These individuals hold prominent public positions within the country, like government executives, senior politicians, etc.
International PEPs
Such individuals have prominent positions in international organizations like senior members of international organizations, directors, or board members.
Standards Required for Business PEP Screening
Financial institutions maintain accurate customer data in their databases for PEP screening. Business PEP screening software utilizes this information for effective and efficient results to identify risks associated with Potentially Exposed Persons and their close associates. Financial institutions require these data standards for effective PEP list screening.
- Name of Customer
- Birth Date
- Birth Year
- Nationality
- Aliases
- Address
- Countries Exposure
- Gender
- Job/ Status Details
Risk-based PEP screening for Businesses
Businesses implement various controls to identify, manage, and monitor PEP relationships effectively.
New Customer Identification
Businesses adopt risk-based procedures to identify customers as PEP according to laws. If a PEP is identified, then opt for enhanced due diligence measures.
Existing Customers Identification
Businesses do on-going monitoring of existing individuals and implement risk-based due diligence controls if they become aware of any PEP.
Customer Risk Assessment
On identifying new or existing customers as PEP, businesses assess the risk imposed by that customer to apply due diligence and monitoring.
Approval
Businesses then consider approval from senior management for PEP financial crime risks according to AML control.
Continuous Monitoring
Customers with PEP relationships are subjected to proportional monitoring to detect unusual activities concerning their close associates.
Training
PEP screening solutions help businesses to prevent and detect financial crimes associated with potential PEPs. Businesses train individuals to identify risks as per policies, procedures, and processes associated with PEPs.
How Businesses Set Up PEP screening process
A comprehensive PEP screening approach is used by Businesses to identify PEPs
Assess Risks and Obligations
Determine the PEP risks associated with business and check against relevant PEP lists based on business operations.
Select PEP Screening Software
PEP screening software effectively screens PEPs against lists that align with the business.
Develop a PEP compliance Program
Design internal controls, procedures, and screening tools to manage and identify PEP risks effectively.
Incorporate PEP Screening Software
Seamlessly incorporate chosen PEP screening software into the system for an efficient screening.
Continuously Screen PEPs Against Lists
Conduct PEP screening on an ongoing basis for all customers interacting with the business.
Conclusion
PEP screening is essential for businesses to protect operations by mitigating risks. Businesses effectively identify and manage PEP relationships to maintain their reputation as responsible entities. A robust PEP screening proactively addresses financial crime risks and contributes to a more transparent financial environment. Let’s discuss compliance.