A watchlist screening process for customer due diligence on a politically exposed person (PEP) can be a critical element in an Anti-Money Laundering (AML) and Know Your Customer (KYC) program. It also helps organizations avoid reputational damage by detecting accounts that might be associated with corruption or bribery.
PEPs are people who hold or have held prominent public positions and could be vulnerable to corruption, money laundering or other illicit activities. PEPs could include government officials, heads of state, high-ranking military officers and senior executives of government-owned enterprises.
Organizations such as financial institutions often closely monitor transactions involving PEPs due to the elevated risk associated with their potential access to public funds and influence.
Three Types of PEPs
PEPs can be broadly classified into three categories.
This category includes people who hold or have held prominent public positions in foreign countries. Financial institutions are often vigilant in monitoring foreign PEP transactions for corruption, embezzlement or money laundering.
These people occupy significant government positions. The category includes presidents, prime ministers, members of parliament and senior government officials. Domestic PEPs are subject to enhanced scrutiny to ensure their financial activities are above board.
International Organization PEPs
People who hold high-ranking positions in international organizations such as the United Nations, the World Bank or the International Monetary Fund can also be classified as PEPs. Their roles in those organizations mean their financial dealings necessitate rigorous monitoring because they can have global implications.
Beyond those categories, anyone who is a known associate or close family member is also often considered a PEP.
Organizations such as financial institutions are required to implement enhanced due diligence measures for PEPs. The measures include thorough background checks, transaction monitoring and reporting suspicious activity.
The definition of a PEP varies around the world, and regulated organizations often have internal policies for identifying and managing PEP-related risks. The common goal, however, remains to safeguard the financial system from potential abuse by those in positions of political power.
Here are some strategies to build a strong PEP compliance program.
Access Comprehensive PEP Lists
A PEP search that covers global and adverse media lists can help ensure information is up to date. Consider the number of sources and how often the information is updated.
Customize List Selection to Meet Requirements
Ensure list coverage matches the regions and the organization’s risk-profile criteria.
Assess PEPS and the Risk They Pose
An appearance on a PEP list doesn’t mean a person is a criminal or should be automatically declined. Deeper due diligence can lead to PEP approval without undue risk.
Implement Ongoing PEP Checks
PEP lists change constantly. Simplify the discovery of new PEPs or questionable activities with ongoing monitoring.
Handle Wrong, Missing or Outdated Information
PEP list errors or improper documentation can lead to false positives and slow and costly manual reviews. Machine learning and automated processes can enable superior screening and compliance processes.
A Comprehensive PEP, AML and KYC Program
PEP due diligence is only part of a watchlist screening service, compliance, customer onboarding and risk mitigation. When all those capabilities are combined in an integrated system, organizations can quickly collect and manage information, accelerate onboarding and gain deeper insights into their customers.
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