PEP Screening – Improving Compliance for Global Businesses

Your business empowers you and a credible PEP screening is what empowers your business. This statement stood true when the chief executive of NatWest, Alison Rosy was charged a fine of €8.7 million as a punitive action upon failing to implement a PEP screening method while dealing with Nigel Farage’s accounts, a Brexit figurehead. The biggest shareholder in the UK’s economy, the NatWest accepted mishandling of the former UK Independence leader bank accounts claiming the client’s exit was lawful and regulated by the bank’s processes. Failure to a methodical PEP list screening, the scandal, however, caused a major decline in the institution’s reputation making investors spook and a notable decline in its interest margin, reported by CNBC on Oct 2023.

This digital piece of paper will enable you to build a clear idea on how the screening check of PEPs can impact your business compliance to laws and regulations. Before diving into the details of PEPs and their influence on the financial atmosphere, let’s keep few facts in mind which are,

• Not all PEPs misuse their public function for financial abuses
• All PEPs do not pose the same risks for states and institutions
• PEPs are not aliens and the subject authority is not required to turn away PEPs immediately.

Politically Exposed Persons: Affiliated Business Compliance

The Financial Action Task Force (FATF) deliberately defines PEPs as those individuals who are or have been trusted with public function. Their domestic or international prominence can make them vulnerable for acting or assisting financial crimes such as money laundering, terror funding, frauds and bribery, etc. Relation of PEPs and financial crimes such as money laundering is entwined as financial crime actors abuse their power or association with prominent public figures to embezzle money and commit bribery using the inside information.

Taking a PEP as a customer, financial institutions (FIs) are required to assess the risks associated with them. In an effort to fight money laundering and potential financial crimes, the FIs such as banks and other designated non-financial businesses and professions (DNBPs) under AML compliance are encouraged to employ a PEP compliance program recommended by FATF in its Recommendation 12. Analyzing the PEP risks through reliable PEP screening solutions which performs real time monitoring on the PEPs on an ongoing AML risks and their associates to assess their involvement in the potential financial and illegal activities.

PEP Screening: Economies and Businesses Oversight

The concealed nature of financial crimes such as money laundering, terror funding and bribery makes it difficult to state exact data of how much money is laundered and bribed through financial institutions majorly banks and real estate industries. Estimating the risk magnitude, the World Bank reported that a total of $1 trillion is bribed annually and an amount equals to GDP of world’s 12 lowest economic countries (more than $20 – $40 million) is laundered through the indifferent facilitation of FIs particularly banks. Such crimes dubbed as grand corruption, not only damages the investment climate of the affected country but also hits its economic grounds. In comparison to other white collar crimes, money laundering penalties are sentenced in greater magnitude, recognized by the USSC (United States Sentencing Commission). Briefed in a book, Globalization, are some published money laundering cases highlighting the need of AML compliance to safeguard the economic downfall.

A failure to PEP compliance program whether intentionally or unintentionally, the FIs tend to face increased risk of financial crimes and are predisposed to legal penalties by the regulatory bodies. King of the cryptocurrency industry, Binance was found guilty for facilitating the money laundering between US users and the sanctioned entities (Iran and North Korea). Reported by Reuters on Nov 2023, Changpeng Zhao, the CEO of Binance was forfeited with $4.3 billion and stepped down for violating money laundering regulations. Other than distorting reputation, the scandal exposed the institution under strict monitoring and lawsuit by (SEC) U.S. Securities and Exchange Commission, causing more challenges for its new CEO Teng to restore the dominance.

To cease the illegal flow of dirty money and stop terror funding, businesses are legally binded to take preventive and eliminative measures by indicating all the factors and persons which could lead to financial crimes and legal penalties. In adherence to FATF regulations and recommendations, serving the very purpose, PEP list screening allows FIs to identify both domestic and international PEPs, enabling the businesses to build a clear perspective on PEPs and make their compliance efforts fruitful.

Enhanced Due Diligence and PEP Checks Go Hand-in-Hand

Undermining the customer confidence in the financial institutions and their ethical standards, inability of the screening systems to flag the politically exposed persons exposes the FIs to potential legal consequences. It is imperative to determine the magnitude of risk posed by PEPs and ensure customer due diligence within the FIs, as recommended by FATF. The updated recommendations make it necessary to have a reliable and functional PEP screening method separating the level of risk associated with domestic and international PEPs.

Highlighted in the World Bank report, the regulations imposed by FATF are not applicable to banks only but designated non-business financial entities such as real estate, stock exchange, money exchangers, insurers and financial advisors are also required to implement enhanced due diligence in their transactions and business relationships. Geography also plays a major role in setting the rules for PEP monitoring as in many countries, for instance: Ukraine, Italy, UK, Lithuania, Luxembourg, Germany, and Italy, the enhanced due diligence and a strict screening for PEPs is limited to foreign PEPs only. While in Switzerland, France, Spain, and Russia, financial institutions are adhered to PEP compliance for both domestic and foreign PEPs.

Risk Measurement and Management

In an effort to meet PEP compliance regulations, substantial FIs use tech driven global and extensive digital databases to implement the enhanced due diligence. Such PEP screening solutions categorize the risks based on PEPs and their associated persons position performing the public function. Stated by the Guernsey Financial Services Commission in Bailiwick’s National Risk Assessment report, foreign PEPs were found involved in the major corruption and money laundering cases. Therefore, the FIs are intended to take mandatory measures to analyze their relationship with PEPs and keep a close check on the source of their funding in relation to the measured risk. Implementation of risk-based approach in assessing the potential PEPs enables FIs to not only eliminate financial crimes but investment objectives of their clients can be better analyzed with robust PEP screening solutions.

Globalization: An Emerging Challenge for PEP Compliance

Published by the International Consortium of Investigative Journalists, the financial club dubbed shady by the authorities, Cyprus, a state member of the European Union, not only violated the EU money laundering regulations but facilitated the sanctioned Russia through its large Cypriot units. The loopholes in compliance regulations failed to put a hold on Cyprus from leading a banking system overfed with ill-gotten money.

Globalization and the gap between present regulations and compliance tools has made it challenging for the financial crime fighting authorities to employ a robust control on the financial crimes. To launder the ill-gotten money, corrupt elites take advantage of natural disasters when on such events, the international community collects the funds for the victims in affected regions. Close monitoring of such transactions has become crucial with the employment of robust screening for the senders in order to avoid potential money laundering and terrorist funding risks, suggested by a researcher at Australian Institute of Criminology.

AML Watcher and Global Compliance: A Robust Solution Provider

Combating the alarming challenges in meeting PEP compliance, AML Watcher offers an all-in-one automated AI/ML driven PEP list screening solution across various industries and countries, incorporating updated PEP lists and regulations. Implementing the risk based approach recommended by FATF, AML Watcher strengthens its PEP screening software with an extensive network of PEP lists to screen individuals from more than 235 countries. The automated database includes,

• High-Risk Individuals
• Relatives and Close Associates
• International and Domestic PEPs
• Historical PEP Records

Keep your Business Ahead of Compliance Demands

With AML watcher’s real time screening, the PEP solution incorporates the expertise of tech geeks and advanced analytics, enabling your business to meet PEP compliance and protect your institution’s integrity. With a strengthened PEP database, we equip your business with effective screening protocols while meeting the global compliance standards such as the FATF Recommendations, UK Bribery Act, UN Anti-corruption Conventions, (AMLDs) EU Anti-Money Laundering Directives, and USA Patriot Act.

Protect your Business with Evolved PEP Screening Solution

AML Watcher laces your business with updated guidelines on PEPs compliance through real time screening process. Driven by the threat detection technology and precision logics, it allows you and your business to implement an enhanced case management with reduced false positives.

With a smart choice in the smart times, let’s move forward to a safer financial climate with a balanced strike and a risk based approach, provided by AML Watcher.
Have a lovely day!