Article 4 min

Watching for “politically exposed persons”

politically exposed persons

March 12, 2020  

politically exposed persons

It hasn’t taken regulators long to start slapping large fines and penalties on financial institutions and merchants even for unwitting violations of stringent new Anti-Money Laundering/Know-Your-Customer (AML/KYC), which mandated that compliance begin in mid-January 2020.

A world tour of defiance to AML/KYC regulations is on tap in the March 2020 PYMNTS AML/KYC Tracker®, which explores the delicate balance between aggressively marketing new financial products on the one hand, and consequences of failing to protect the identities and funds of valid account holders on the other.

AML/KYC 2020: tens of billions in fines levied as 5AMLD clears a path for 6AMLD

The European Union’s 2020 5th Anti-Money Laundering Directive (5AMLD) went further and took a stricter stance than its predecessor, cracking down especially hard on cryptocurrencies and exchanges. Also singled out for greater scrutiny under 5AMLD are funds flowing from certain parts of the world known to be fraud hotspots.

Punishments for financial institutions found to be in AML/KYC noncompliance hit astronomical levels in December 2019, when global penalties soared to $36 billion. Last year, a dozen of the world’s top 50 banks were fined for AML/KYC abuses, and sanctions violations involving embargoed nations like Iran and North Korea amounted to nearly $90 million more in fines.

Legal wrangling from India to the United Araba Emirates is covered extensively in the latest Tracker, as authorities worldwide push the button on more enforcement. Merchants and financial institutions (FIs) are scrambling to keep up, and many are finding that compliance on this level is difficult.

Meticulous AML/KYC watchlists are proving an effective weapon in this global fight, as compliance with 5AMLD and similar regulations require ongoing identity checks against lists of high-risk individuals known as “politically exposed persons” (PEPs). But the number of individuals, groups and crisscrossing crime patterns are beyond the scope of legacy ID methods.

“In order to quickly adapt AML efforts, payments processing companies should consider flexible, scalable and interoperable technology that can easily be reconfigured for many in-market conditions coincidingly,” Trulioo chief operating officer Zac Cohen told PYMNTS.

“Additionally, for identity verification, a layered approach that applies the correct screening and onboarding workflows for the right customer at the right time is the way to go if these companies want to obey the ever-evolving laws and regulations around AML globally.”

6AMLD right around the corner

With whole sectors reeling from disruptions caused by the Coronavirus outbreak of early 2020, the burden of AML/KYC compliance is being downgraded, with some companies feeling that a sudden sales plummet is more of an existential threat. That’s understandable, but untrue.

And those that didn’t like 5AMLD are not going to like 6AMLD any better. The European Union’s 6th Anti-Money Laundering Directive (6AMLD) was firmed up in December 2019 and is set to go into force on June 23, 2021. It differs from the current directive in a number of important ways, specifically in that it seeks to identify and prosecute individuals who greenlight AMLD violations. In fact, there are 22 predicate offenses listed as part of 6AMLD, many designed to remove hiding places where perpetrators find shelter — including inside financial institutions.

Meanwhile, those massive penalties will keep piling up. “U.S. regulators appear to have been especially focused on sanctions violations, which made up 86 percent of the fines they issued during the past 15 months,” the latest PYMNTS Tracker notes. In just one example, “U.S. Department of Justice regulators penalized a major FI to the tune of $717.2 million for failures to implement sufficient oversight and compliance infrastructure to prevent sanctions violations that sent $8.3 billion via 2,600 transfers into Iran, North Korea and Sudan.”