A politically exposed person (PEP) is someone who has a high-profile political position or is close to such a person - for example, a family member.
The definition is broad but includes:
These individuals could abuse their position to launder money, or take part in bribery or corruption.
If your business is subject to AML regulations then you need to assess the customer’s political position and decide if they present a money laundering risk. You can then use this to determine whether you work with them or not.
Sanctions are when an individual has assets frozen by the international community. They are usually imposed due to criminal activity, corruption or terrorism.
For example, imagine the leader of an organised crime gang is hiding out abroad. They own several properties back in the UK and they are able to live off the proceeds. By issuing sanctions against the individual, the UK government and law enforcement can seize the property and freeze all payments going to the person abroad.
Sanctioned individuals usually try to continue their business dealings by hiding behind complicated corporate structures that use shell companies. Once again, it is up to regulated businesses to identify whether a customer presents a high risk of supporting someone who has sanctions against them.
PEPs screening is part of the enhanced due diligence process (EDD).
During your usual due diligence activities, you collect information on the individual’s identity and business and verify that information.
The customer is assigned a risk score based on the information you collected from them on their identity and business. If the risk score is high, you should conduct enhanced due diligence (EDD).
EDD involves:
If the customer or the company’s ultimate beneficial owner is a high-risk PEP or appears on a sanctions list you should send an SAR to the NCA. It is also a good idea to refuse to work with the person. You should also do this if you suspect any kind of criminal activity.
Just because a customer poses little or no risk today, doesn’t mean that won’t change over time. It’s, therefore, a good idea to monitor all your customers’ AML risk profiles for changes. Check every new transaction and conduct new due diligence checks at least annually. This means you’ll spot new AML threats in your customer base.
You can also use a compliance platform like ours to find out immediately when your clients are added to PEPs or sanctions lists.
A PEP background check is part of the EDD process. It is when you search international PEP databases to see if the person is listed there.
Some of these databases include:
Screening for PEPs and sanctions is important because it helps identify and stop potential money launderers and international criminals.
This helps stop crimes like:
But screening for PEPs and sanctions is also a legal requirement. If your company is subject to AML regulations and you fail to conduct adequate PEP screening or report suspicious activity, you could face serious repercussions, including:
Failing to implement adequate AML checks and processes can lead to a regulatory fine.
This can be up to EUR 5 million or 10% of your company’s annual turnover - whichever is higher.
Failing to prevent financial crimes could damage your company’s reputation. Your name will become associated with organised crime, which will likely deter customers from working with you. It also shows that your business isn’t functioning correctly. If you can’t meet your regulatory requirements, what else is going wrong at your company?
In the most extreme cases, you could face a prison sentence if your business has enabled or been involved in money laundering.
In terms of anti-money laundering, adverse media screening is when you search for negative news reports on an individual. These reports will say or allege that the person has been involved in crime, corruption, terrorism or other unlawful activities. If you can find this sort of information on a person then they are likely to present an increased risk of money laundering or financial crime.
The amount of adverse media information you can find on an individual will help you decide what money laundering risk they present.
Manually screening for adverse media reports is likely to be time-consuming and inefficient. If you can, try to get a tool that will automatically scrape the internet for negative news. The best tools will be able to provide you with news reports that are relevant to financial crime - not just general information on that person.
Once you have a tool, set it to screen for new adverse media information at regular intervals. Some tools will provide you with alerts as soon as a new report is published. But you can also set it to screen several times per year or on certain days, depending on what is relevant to the customer’s risk profile.
It can be difficult to define whether a news report represents an increase in an individual’s risk profile or not. It’s therefore a good idea to categorise the severity of adverse media reports. This allows you to accurately measure the level of risk they pose.
For example, reports of someone being prosecuted for drug dealing are more likely to indicate a high risk of money laundering than reports that someone forgot to pay their taxes.
Take into consideration how old the adverse media reports you find are. Less severe news stories will be less important as time goes on, but stories of serious crimes will continue to be relevant for years or even decades.
One of the biggest challenges of screening for PEPs and sanctions is it’s often time-consuming. This can be frustrating for customers and makes the customer onboarding process less efficient for the company performing the checks.
By using a platform like Red Flag Alert, you can screen for PEPs and sanctions quickly and easily.
You’ll also have the tools you need to comply with regulatory requirements. This improves your customer experience and protects you from regulatory fines and reputational damage.
Our compliance solution protects your business with the most robust processes on the market, combining all the features you need in one solution
Always stay compliant
Red Flag Alert provides a comprehensive guide to adverse media screening, peps and sanctions. This is for those dealing with politically exposed people.
Learn how to find stable, reliable clients by targeting financially healthy businesses with long-term potential.
For our quickest response simply call us on 0330 460 9877 and speak to an expert now!