“Person Screening” whenever someone discusses Corruption, bribery, and embezzlement, politicians, public office holders, and higher-ranked military offices always remain the center state of the topic.
Why is it? Because corruption is directly linked to Person Screening .
Though corruption itself is devastating for the global financial system, it becomes more shocking when someone learns that more than 1 trillion dollars are spent on corruption and bribery every year.
And the efforts being made by international bodies are plausible. And they make great efforts to combat corrupt activities that ultimately lead to money laundering and other financial crimes.
So, screening against Politically exposed persons is essential under the compliance program set by international bodies.
In this blog, we will highlight the people who could be added to the PEPs list, why PEP screening solutions are important for businesses, and which organizations or businesses should prioritize implementing it.
Who are Politically Exposed Persons?
Generally, the term PEPS is used for those who are politicians, hold any governmental office, are judges, or are military officials.
Still, with the latest definition of PEPs introduced by the European Union, the close allies of PEPs such as siblings, parents, children and close associates are now part of the Politically Exposed list.
Therefore, whenever a business or financial institution onboard new clients, they must screen their RCA and PEP screening to ensure better compliance.
A Politically Exposed Person is an individual who holds public office, especially governmental roles. However, the following entities are also considered PEPs due to their influential power.
- Current or Former Government Officials
- Civil Servants
- Individuals in the Judiciary
- Military Personnel
- Politicians
Why is PEP Screening Important?
The answer is quite simple. To implement the strategy that is beneficial in combating the crimes such as laundering, fraud, embezzlement and terror financing.
If we look around the world, we will understand that among many global financial problems, corruption is one significant problem that is devastating the financial system today.
And what could be more dangerous for any system if over $2.0 trillion is lost to corruption globally, accounting for 5% of the world’s economy?
A World Bank report reveals that individuals and businesses pay more than $1 trillion in bribes every year to politically exposed persons.
PEP scanning solution is essential for businesses to stop such crimes from being laundered to other destinations.
For that, businesses need to be extra careful when dealing with the money and activities of important foreign political figures.
So here are some reasons why businesses must conduct PEP screening while onboarding new clients.
Identifying the Risk associated with PEPs
Though no law prohibits businesses from doing business deals with PEPs, due to their higher ranking and influential power, implementing enhanced precautionary measures when onboarding them is essential.
And that is the reason that every organization whether financial institution or any other business that deals with some sort of transactions work must screen against the PEP.
Financial Stability
As in the case for business, the risk that is tied to the Politically exposed person has to be established in order to reduce the number of regulatory fines and penalties as well as reputational loses.
Financial Action Task Force Recommendation on PEP Screening
Intergovernmental organizations always monitor bad actors to improve the financial system around the world.
When it comes to PEP screening, the FATF recommendations, particularly Recommendations 12 and 22, emphasize the Political Exposed Person (PEP) screening process.
PEP screening process
Customer Identification and verification
The first and foremost part of the AML compliance program is to know who you are making business relations with. Regarding PEPs, the screening process becomes more crucial and effective.
Risk Management
The other crucial part is that financial Institutions should apply a PEP risk assessment approach. The screening process must consider the people’s position and how influential their power will be in the future in committing financial crimes and then assign risk scoring.
Ongoing Monitoring
There is a possibility that a PEP who was not involved in any crime could indulge in fraud, corruption, or any other crime. So, to stay compliant and updated with the latest screening process, continuous monitoring of business relationships with PEPs is necessary to detect and prevent misuse of the financial system.
Use of External Sources
Your business has a detailed and structured dataset for screening politically exposed people, but it wouldn’t be enough every time, particularly if you have to deal with foreign people.
AML Watcher provides you with a comprehensive, updated, and authentic PEP database that has a 0 % false positive rate. Above all, their solutions reduce your compliance cost by up to 50%.
Complying with AML regulations is essential for businesses, and when it comes to PEP screening, the process becomes even more complicated and complex.
Therefore, businesses need to implement an updated PEP screening tool that meets all the compliance requirements.
