Organizations such as financial institutions must recognize the risks of the people or institutions they cooperate with to reduce the risks of money laundering and terrorist financing. To determine the risks to their customers and the institutions they collaborate with, institutions apply CDD and EDD procedures. These practices have been proposed by local and global regulators.
The risks of every customer or institution cannot be the same, and the risks of some people are higher, such as PEPs. These individuals pose more risks to the institutions they collaborate with, and organizations should conduct a wider investigation to determine their risks. EDD allows for an extensive risk analysis to be conducted. SIPs or SIEs also pose high risks to organizations, and identifying them is crucial.
Who are Special Interest Persons (SIPs)?
SIPs are individuals who have high risks, just like PEPs. They are typically involved in criminal activities, and suspicious activity has been found in the past. They may have been involved in court proceedings, had previous criminal allegations, or been involved in financial crimes such as money laundering and terrorist financing. Organizations need to identify SIPs because they inevitably put them at greater risk of money laundering.
How to Identify SIPs?
SIPs can be recognized through Adverse Media and PEP Sanction screening, which are typically performed during applications such as Customer Due Diligence and Enhanced Due Diligence. SIPs identified through these applications are considered high-risk by institutions. Certain situations increase the likelihood of someone being considered a SIP, such as involvement in:
- Illegal goods smuggling
- Bribery and corruption
- Organized crime
- Arms trade
- Tax evasion
- Financial theft crimes
- Money laundering
- Fraud
- Extortion
- Terrorism
- Terrorism financing
What Are Special Interest Entities (SIEs)?
SIEs are high-risk organizations involved in criminal activities or suspected of being involved in criminal activities. Before establishing cooperation, institutions want to know the risks associated with their partner or the institution they will do business with. If SIEs are spotted, organizations may be anxious because these institutions have greater risks of money laundering and terrorist financing. SIEs should be identified, like SIPs, and necessary precautions should be taken.
There is no specific list of SIEs and SIPs, but these individuals and organizations can be identified through Adverse Media, PEP, and Sanction data. Identifying SIEs and SIPs can help protect an organization's financial integrity and reputation. It is important to understand the definitions of SIEs and SIPs. Additionally, SIEs and SIPs are not illegal to do business with; however, institutions should take necessary precautions.
The Importance of Ongoing Monitoring
When it comes to risk management in financial institutions, identifying high-risk individuals or entities such as SIPs and SIEs is just the first step. Ongoing monitoring and updating of their information is equally important to ensure that the institution remains protected from potential risks.
Once companies detect SIPs/SIEs, they must continuously monitor SIPs/SIEs for any changes in their risk profile or financial activity. For instance, if an individual was previously identified as a SIP and is found to be involved in a financial crime again. In this situation, it is necessary that the institution become immediately informed for appropriate action can be taken. This is especially crucial in light of the constantly evolving tactics used by criminals to evade detection and perpetrate financial crimes.
Moreover, institutions need to stay up to date with the latest information about these high-risk persons and entities with the increasing amount of data available and the continuous evolution of risk factors. This requires to have dynamic risk management approach where institutions should update their risk assessment frameworks and procedures regularly to stay relevant.
Also, SIPs/SIEs may change over time, and individuals or entities that were once considered low-risk may become high-risk due to changes in their profile or activity in financial status. For instance, an SIE that was previously involved in legitimate business activities may be taken over by criminals and used for illegal purposes.
In such cases, regular updates to the institution's risk assessment frameworks and procedures become even more critical. Financial institutions must have access to the latest information on SIPs/SIEs to make better decisions and take appropriate actions to mitigate risks.
Sanction Scanner Solutions
Sanctions, PEP, and Adverse Media data are constantly changing and growing. Scanning this data manually to detect all SIEs and SIPs is both impossible and unsafe, considering thousands of news articles are published every day worldwide. Sanction Scanner's Adverse Media, PEP, and Sanction data can efficiently scan an organization's customers and the organizations they do business with to identify SIPs and SIEs.
