By Legal Futures Associate Lawtech Software Group
Regulated industries must meticulously identify Politically Exposed Persons (PEPs) and sanctioned individuals during their onboarding process to comply with Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements. This article explores the significance of PEPs and sanctions designations, the authorities that define them, and the process of navigating PEPs and sanctions screening.
We also analyse and dissect the role Verify 365 plays in helping law firms confirm an individual’s identity and identify if they are politically exposed or under current sanctions.
Defining PEPs and sanctions
A PEP is an individual at higher risk of money laundering due to bribery or corruption, typically due to holding a prominent position or being close to someone in a political position. The Financial Action Task Force (FATF) defines a PEP as someone entrusted with a prominent public function that could be abused to launder illicit funds or commit offences like corruption or bribery.
Positions that qualify someone as a PEP include governmental and parliamentary roles, high-ranking military officers, and senior members of judicial bodies. Additionally, individuals closely associated with someone in a high-risk position, such as family members, close business associates, or beneficial owners of property, are also considered PEPs.
Sanctions are measures imposed to restrict the activities of individuals or countries. These restrictions serve as a global record of limitations, akin to adverse media, which is publicly available information used by organisations to uncover negative data about potential customers. Sanctions lists are maintained and published by governments and international bodies to identify and protect entities from individuals engaged in illegal activities, known as personal sanctions.
Sanctions checks are an essential part of the Customer Due Diligence (CDD) process, providing a robust layer of defence against individuals who violate laws or regulations. Regulated businesses must conduct sanctions checks to comply with KYC and AML requirements.
Understanding sanctions lists
Sanctions lists originated from the United Nations Security Council (UNSC) in 1966, and since then, numerous sanctions regimes have been established to protect international interests against various threats, including global conflicts and escalation, nuclear proliferation, as well as terrorism and human rights violations.
Individuals, organisations, or governments involved in illegal activities such as money laundering, drug trafficking, and violation of international treaties are added to these lists. Sanctioned individuals face financial penalties, including frozen assets and fines, and other punishments, such as reduced military aid or travel bans.
The necessity of PEPs and sanctions screening
Certain regulated industries, especially financial services, are mandated to perform PEPs and sanctions screening as part of their CDD processes during onboarding. Based on the screening results, additional checks might be required before deciding whether to onboard a customer. These CDD processes are integral to the broader KYC flow.
The US, UK, EU, and other international bodies, like the United Nations, impose sanctions to prohibit businesses from engaging with certain countries, organisations, or individuals. The UK government states that sanctions aim to “change the behaviour of the target country’s regimes, individuals, or groups in a direction which will improve the situation in that country.”
Various authorities create sanctions lists. For instance, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) manages the CAPTA list. The EU and UK maintain their own lists. According to the US Treasury Department, all transactions involving US financial institutions must comply with OFAC regulations, making it unlawful to process transactions involving sanctioned parties.
Companies operating in multiple countries must monitor numerous lists to ensure compliance across geographies.
How sanctions checks operate
Sanctions lists span multiple borders, creating a complex web of political and diplomatic affairs that organisations must navigate. To meet global regulatory and CDD requirements, businesses rely on comprehensive and up-to-date sanctions checks.
While manual scanning of these lists is theoretically possible, it is time-consuming, inefficient, and risky. Automation streamlines the process, ensuring accuracy and compliance with international regulations. Automated solutions validate applicant data against constantly updated global databases, providing a holistic and accurate view of each customer.
Risks of inaccurate sanctions checks
Inaccurate sanctions checks can lead to severe legal and financial penalties for organisations. Non-compliance with regulatory requirements like KYC, AML, and the 6th Anti-Money Laundering Directive (6AMLD) can result in reputational damage. In some cases, businesses must implement EDD for high-risk customers with potential connections to sanctions lists, adding a second layer of due diligence to mitigate risks.
Regulated industries must conduct thorough PEPs and sanctions screenings as part of their compliance efforts. By understanding the definitions, authorities, and processes involved, businesses can ensure they meet regulatory requirements and protect themselves from engaging with high-risk individuals or entities.
How Verify 365 helps businesses identify PEPs and sanctions
Verify 365 innovative technology is helping businesses take a risk-based approach to mitigate potential harm and prevent fraud. Our technology is enabling lawyers, solicitors, conveyancers and estate agents to unify their onboarding processes into one streamlined platform, complete lite and enhanced due diligence checks and practice compliantly within the regulatory guidelines.
Through the Verify 365 platform, you can complete AML screenings to identify an individual’s current status. Our comprehensive reports will detail whether an individual is politically exposed, sanctioned in any capacity, or facing adverse media. Using over 1,400 global PEPs and sanctions lists, we enable you to confidently confirm an individual’s or business’s status so you can take the necessary steps to mitigate risk and tackle financial crime.
We provide you with comprehensive reports and have ongoing monitoring in place. If an individual or business’s status changes, you will be the first to know, as we will notify you. This monitoring is ongoing over a 12-month period and notifying ensures you can protect your business.
If you’re keen to discover more about our PEPs and Sanctions checks and screenings, speak with our expert team today or download our latest case study, which details the successes of our PEPs and Sanctions screenings with one of our amazing clients.
