For compliance officers within regulated industries, two critical elements often stand at the forefront: Politically Exposed Persons (PEPs) and sanctions.
Both are integral to safeguarding against financial crimes and ensuring regulatory adherence. But which holds greater significance?
Our experts have broken down the details of PEPs and sanctions, dissecting their roles, implications, and the necessity of conducting thorough checks across AML compliance.
What is a Politically Exposed Person
The term politically exposed person (PEP) refers to an individual holding a prominent public position or role, like a government official, lawmaker, or high-ranking executive in state-owned enterprises.
PEPs are considered at higher risk for potential involvement in corruption or financial crimes due to their influence and access to public resources.
This is why regulators place strict requirements on financial institutions to apply enhanced due diligence measures when engaging in business relationships with PEPs to mitigate the risks associated with money laundering, bribery, or other illicit activities.
Examples of politically exposed persons (PEPs) can include:
- Heads of state, presidents, prime ministers, and government ministers.
- Members of parliament, congress, or legislative bodies.
- Senior officials in government agencies and regulatory bodies.
- High-ranking military officials and leaders of armed forces.
- Heads of state-owned enterprises and government-owned corporations.
- Judges and senior officials in judicial systems.
- Leaders of political parties and electoral candidates.
- Diplomats and ambassadors representing their countries abroad.
- Leaders of international organisations and supranational entities.
- Family members and close associates of PEPs can benefit from their political connections.
What are Sanctions?
Sanctions refer to restrictive measures imposed by the government or international bodies on specific individuals, entities, or countries.
These measures aim to enforce compliance with regulatory requirements, international law, or foreign policy objectives. Sanctions can involve limitations on trade, financial transactions, investments, or the provision of services.
Violations of sanctions can result in severe penalties, including fines or legal action, meaning businesses must adhere to sanction regulations to avoid legal and reputational risks, including damage to relationships with partners and stakeholders, and ensure compliance with international standards and obligations.
Take a look at some of the most recent sanctions set out by the UK government:
- Myanmar - 1 February 2024 - Financial sanctions on Myanmar are set out as part of international efforts to address human rights abuses and support democratic transition in the country.
- Russia - 5 March 2024 - The recent guidance on Russia reflects international responses to various geopolitical challenges and human rights concerns.
- Yemen - 27 February 2024 - Sanctions on the country of Yemen are in tandem with international efforts to address humanitarian crises and promote peace in the region.
What is a PEPs and Sanctions Check?
A PEPs and Sanctions check involves two distinct searches aimed at identifying potential risks associated with individuals in financial transactions.
A PEP (Politically Exposed Person) check determines if an individual is connected, directly or indirectly, to someone in a position of political power, necessitating close monitoring due to increased risk of criminal activity.
On the other hand, a sanctions check identifies if an individual or business is listed on sanctioned country or individuals' lists, indicating legal restrictions on financial dealings.
Regulated companies conduct these checks under Money Laundering Regulations to ensure compliance and mitigate risks. Utilising robust anti-money laundering (AML) processes and systems for ongoing monitoring is crucial as PEPs and Sanctions lists are frequently updated.
Given that most financial sanctions target individuals rather than organisations, automated checks are indispensable to prevent potential breaches and maintain regulatory adherence.
Why are PEPs and Sanctions checks necessary for AML compliance?
Any business within regulated industries in the UK are mandated to complete PEPs and sanctions screening checks as part of their AML compliance procedures and customer due diligence when onboarding new clients, customers, and suppliers. This includes industries such as such as banks, money service businesses, and legal professionals.
Using the results of the checks, businesses can make confident decisions regarding further screening, as AML checks form a small part of an overall KYC process.
When assessing the necessity of sanctions, it’s important to understand where they come from. In the UK, businesses must follow any sanctions outlined by the government, which can include sanctions decided by the US, EU and other countries or bodies, such as the United Nations.
These sanctions checks are crucial for AML (Anti-Money Laundering) compliance due to the significant risks associated with these individuals and entities.
By conducting PEPs and Sanctions checks, businesses can mitigate the risk of being involved in money laundering, terrorist financing, or other illicit activities. These checks help ensure that companies comply with regulatory requirements and avoid penalties or legal consequences.
Additionally, screening for PEPs and sanctioned entities helps protect businesses from reputational damage and financial losses associated with engaging with high-risk individuals or entities.
So, it’s clear that PEPs and sanctions are both fundamental components of AML compliance efforts, helping businesses maintain integrity and security in their financial operations.
But, if both are of significant importance, how can compliance officers stay ahead of pitfalls without requiring extensive resources?
Conduct Fast and Effective PEPs and Sanctions Checks with Red Flag Alert
Red Flag Alert stands out as a leading credit reference agency and compliance platform, offering comprehensive AML and EDD checks, including PEPs, sanctions, and adverse media checks, with real-time monitoring capabilities.
Our fully digital solution is meticulously designed to alleviate the burdens associated with PEPs and sanctions checks as a part of AML processes, ensuring seamless operations for businesses and their onboarding clients.
By creating a platform that eliminates lengthy processes by enabling quick checks, businesses can transform their required checks from a resource drain over lengthy periods, into checks that take just 30 seconds for staff to send and minutes for clients to complete directly on their devices without app downloads.
To further improve business experience across PEPs and sanctions checks, our bulk check feature allows users to send out up to 100 checks with a single click, enhancing efficiency and productivity.
All check reports are then promptly delivered to users' computers via our platform, backed by multi-bureau analysis for unbeatable match rates, facilitating rapid client onboarding while maintaining compliance with regulatory requirements, and ensuring greater client satisfaction.
Across the data provider industry, Red Flag Alert has the platform and tools businesses need to effortlessly perform enhanced due diligence checks, including instant verification against international databases of PEPs or sanctions lists. With access to data that is consistently cleansed and enriched, users have access to up-to-date information on every active UK business, to make informed decisions regarding high-risk customers easier than ever.
Beyond specific features, Red Flag Alert guarantees real-time updates and cloud-based storage of workflow data, facilitating ongoing AML compliance monitoring and documentation. This ensures businesses can easily demonstrate compliance during regulatory audits, instilling consistent confidence in stakeholders and regulatory bodies.
Adhere to PEPs and Sanctions Requirements with Red Flag Alert
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