Political Exposed Persons (PEPs) are high-risk individuals, including government officials and political party members, due to their increased opportunities for acquiring assets through illegal means such as bribery and money laundering. Therefore, PEPs must be identified and screened in financial institutions because of their risks. Identifying PEPs and determining their risks is generally referred to as PEP List Screening. It is an essential screening for the best implementation of AML compliance programs, especially in financial institutions.
Why Should PEPs Be Determined?
Bribery and corruption crimes are very important problems globally, and the effects of these crimes are quite adverse. Approximately $1 trillion in bribes are processed each year, and the amount of corruption is estimated at almost 2.6 trillion. These numbers have serious implications, so financial institutions prevent these crimes. PEP screening is an activity that prevents crimes such as bribery and corruption. The process allows PEPs to be detected. The most important reason for detecting PEPs is that they are defined as high-risk people because they have more opportunities to earn illegal income, such as money laundering, terrorism financing, corruption, and bribery. Therefore, businesses have to detect PEPs and control their transactions according to the regulations. Companies that do not detect PEPs and control their transactions are penalized for failing to comply with local or global regulations.
PEP Screening Process
Unfortunately, there are no universally accepted rules to define people in the PEPs category. When conducting a PEP screening, it is necessary to identify the politically exposed people and their relatives and close associates (RCA). Besides, it cannot be said that every PEP has the same risk because PEPs are separated within themselves. The risk created by domestic PEPs, foreign PEPs, international organization PEPs, and foreign PEPs is much higher than the risk created by domestic PEPs. Financial institutions should implement and improve PEP screening processes no matter how complex they identify PEPs.
PEP and Sanction Screening should be performed in accordance with the risk understanding of an FI applying a risk-based approach. The PEP Screening should be performed during the customers' initial engagement process while periodically reviewing customers when any triggering event requires a Customer Due Diligence review. In most cases, PEP screening is not the primary means of identifying PEPs. Responsibility for the definition of PEP remains with the lines of business that are in direct contact with the customer and must be included in the CDD processes.
Data quality standards required for PEP Screening
Financial institutions have to have complete and accurate electronic customer data records so that the databases used for the PEP Screening process contain sufficient unique identification data. The PEP screening would be inefficient and ineffective and yield irrelevant results that are inconsistent with an RCA without this information. Therefore, the minimum data financial institutions should know for an effective PEP Screening include:
- Full name
- Date of birth or year
- Country of political exposure
- Gender
- Politically exposed roles, appointment dates, and years
- The date PEP left its position
Screening Customers Against PEP Lists Periodically
Periodic screening of existing customers against PEP lists is an essential part of AML/CFT efforts. While conducting initial screenings is crucial, it is not sufficient in identifying and mitigating the risks associated with PEPs. the process must be continued, and according to your red flags, further investigations should be conducted.
Therefore, it is important to perform periodic scans of existing customers to update their risk levels. However, there is no universal definition for the frequency of such scans, and it varies depending on the business's risk appetite and other factors.
The periodic screening is necessary because the risk level of a customer can change over time. For instance, a customer may not be classified as a PEP during the onboarding process, but could later become one. Therefore, conducting periodic scans helps to identify any changes in a customer's status and adjust their risk level accordingly.
By updating the risk level of customers, businesses can place them into appropriate risk categories and take necessary actions to mitigate any potential risks. Hence, regular PEP list screening of existing customers is an important measure that businesses can take to ensure their compliance with AML/CFT regulations and protect themselves from financial crimes.
PEP Risk Management Framework
There is a wide variety of controls that define and manage PEP relationships. Financial institutions should also properly perform these controls. Here are some of these controls:
- New Customer Identification: Financial Institutions must have risk-based procedures to determine whether a customer is a PEP before or shortly after the relationship is established, in accordance with applicable laws. If a new client is designated as a PEP, financial institutions should apply appropriate due diligence measures to the client promptly.
- Existing Customers Identification: Financial institutions should implement risk-based due diligence and controls if they become aware of their current customers becoming PEP.
- Customer Risk Assessment: Once a new or existing customer has been identified as a PEP, financial institutions must perform a risk assessment to determine the level of financial crime risk posed by that customer and appropriate levels of due diligence and monitoring. Financial institutions should consider risk factors such as business type, geography, and product and make risk assessments accordingly. For example, financial institutions should consider information from reliable and independent sources in the country of political exposure in determining geographic risks.
- Approval: Financial institutions should also be approved by senior management, which has PEP relationships, financial crime risk, and responsibilities within the entity's AML control environment. Enhanced Monitoring: Customers (accounts) with a PEP relationship should be subject to enhanced proportional monitoring to detect unusual and potentially suspicious activity. These people can generally be called Relatives and Close Associates (RCA).
- Training: Financial institutions are the first line of defense in preventing and detecting financial crimes such as money laundering. In addition, financial institutions play an important role in identifying PEPs or potential customers. Therefore, the risks, policies, procedures, and processes associated with PEPs must be communicated to relevant employees and their managers and form part of the regular AML training program.
Sanction Scanner PEP Screening
- Compliance with Regulations: Every institution has some AML regulations to comply with. Institutions that do not comply with these regulations and do not meet the AML requirements are subject to several criminal sanctions. Sanction Scanner PEP Screening Service meets the requirements of FATF and EU local regulators. Protect your business from penalties by speeding up your customers' PEP control processes with our powerful API.
- Reduced False Positives: False positives prevent a business from focusing on the right alarms, increasing the workload. Therefore, institutions need to create the most appropriate scenario and rules. Sanction Scanner Compliance Solutions aims to reduce false positives. So you can create the most suitable scenario and rules for your business without any coding knowledge. So you can reduce your workload by focusing on the right alarms.
- AI Support: Sanction Scanner is an AI-powered AML compliance software. It collects and configures PEP data worldwide thanks to this AI support. Thus, businesses can access global PEP data and query their customers with their name, surname, identity, or passport numbers. Also, through the Sanction Scanner, you can access the results of your customer screenings in seconds. Thus, you can take a risk-based approach by identifying high-risk customers.
- Real-Time Data in 15 Minutes: The Sanction Scanner PEP List is updated every fifteen minutes, allowing you to access up-to-date data instantly. Thus, you can perform customer due diligence and enhanced due diligence more accurately in line with instant data.
- Easy API Integration: Sanction Scanner PEP Screening Service has easy API integration, search history export, and batch query features. Through these features, businesses can perform customer risk assessments within seconds. In addition, they can efficiently execute KYC, CDD, and EDD processes.
