PEP and Sanction List Screening: The Complete Guide for AML Compliance

PEP and Sanctions list Screening: The Complete Guide for AML Compliance

The United States Government Treasury Department’s Office of Foreign Assets Control (OFAC) isn’t shy when it comes to issuing and enforcing sanctions. There is no avoiding the fallout or repercussions of watchlist screening anywhere in the world. Self-reporting is your business’s best bet when it comes to sanctions list screening.

Under the oversight of OFAC, the European Union (EU), United Nations (UN) other governing bodies, potential terrorists, fraudsters, and cybercriminals are prevented from entering global economic systems through watchlist screening. It involves monitoring for Specially Designated Nationals (SDN’s), Politically Exposed Persons (PEP), Blocked Person list, and Adverse Media Screening.

As part of your Customer Identification Program (CIP) in your Know Your Customer (KYC) process, you will be required under the Bank Secrecy Act (BSA) to report the identification of these persons when performing enhanced due diligence. Enhanced due diligence and transaction screening and monitoring are required for Anti-Money Laundering (AML) and counter-terrorism measures that are part of your identity verification solution which includes PEP and sanction list screening.

 

What is PEP and Sanction List Screening?

 

To sanction may mean to permit, but in this case, sanctions restrict persons, business entities, and countries from trade and official contact. Sanctions, trade embargoes, or tariffs are enforced by any country or country that wishes to punish another country/entity/individual for any perceived trade or criminal breach. Sanction list screening involves checking an individual’s validated ID or business documents against updated sanction lists to ensure the person/entity is not involved in any breaches or is a party to individuals or entities on the list.

According to the Financial Crimes Enforcement Network (FinCEN) and other joint US governing bodies, US public officials are not considered PEP’s. PEP’s consist of current or former: –

A senior official in the executive, legislative, administrative, military, or judicial branches of a foreign government (whether elected or not)

  • A senior official of a major foreign political party
  • A senior executive of a foreign-government-owned commercial enterprise
  • A corporation, business, or other entity that has been formed by, or for the benefit of, any such individual
  • An immediate family member (including spouses, parents, siblings, children, and a spouse’s parents and siblings) of any such individual
  • A person who is widely and publicly known to be a close associate of such individuals

Specially Designated Nationals (SDN’s) and Blocked Person List is managed by OFAC and include companies, organizations, and individuals who have been identified as posing a threat to U.S. national security and foreign and economic policy. These are usually designated terrorists, officials and beneficiaries of certain authoritarian regimes, and international criminals.

When a company finds itself on the Negative News or Adverse Media Watchlist it can be for several reasons. These reasons are separated and mitigated according to the level of risk. Depending on the level of risk, being on the adverse media watchlist can affect your investments, shareholders, and everyday business relations. Sanctions are only done on persons/entities on this adverse media watchlist only if they pose a threat to national and global economic security.

In terms of economic sanctions against countries, as a business, your options are fairly simple. You either stay with the sanctioned country and continue to do business with them thereby risking sanctions yourself, or you abandon ship. Depending on existing treaties or type of sanction, your home country may not have to acknowledge imposed sanctions. This occurs frequently with China and Russia as they continue to trade with one another whenever the US imposes unilateral sanctions on either one.

 

How to Get On and Off Sanction Lists?

 

Getting on and off any sanction list is not that hard. All it takes to get on the list is by participating in financial crime, criminal breach, or military threat, or in the case of Venezuela, an ill-placed insult. Financial breaches can include any monetary crime that can have a widespread economic impact. Crimes like tax evasion, embezzlement, money laundering, and terrorism financing.

Criminal breaches can be threats to national and global security, such as illegal trafficking, illegal immigrants, and terrorists. People on the Denied Persons List are usually criminal elements who have been convicted or indicted in financial or criminal offenses. Once you are a potential threat to a large body of people or economic stability, you can be sanctioned and end up on global watchlists.

In the case of an adverse media watchlist, you and your company can end up on this list through indirect means. Differing political views, personal affairs, and business failures can put you on this list. Getting off the adverse media list, however, is easier than every other list mentioned here. Unless you or your business were involved in criminal activity, most times, it is simply a matter of correcting your mistakes and repairing your reputation.

To get off watchlist and sanction lists, there must be a written request to OFAC or whichever international body that sanctioned you and there will be an investigation into your activities before you are removed. Of course, not having repeat Suspicious Activity Reports (SAR) filed against you or your business will help keep you off those sanction lists. Only persons exempt from Currency Transaction Reports (CTR) are exempt from being reported. Which would include banks, the US Treasury, and some government agencies and officials.

 

Why is PEP and Sanction List Screening Important?

 

There is some debate on whether or not sanctions work or if they only hurt innocent citizens. Recently, there have been studies on the destructive impact of sanctions on citizens and when a country chooses to punish a country rather than the regime. In that instance, it is hard to see a clear benefit to sanctions. However, at the business and individual level, sanction list screening has a bigger and more productive impact on the economy and individual safety.

That is due to the in-depth targeting nature of sanction list screening. There is no blanketed recourse unless involvement can be proven. However, in businesses that fail to meet AML compliance repeatedly, there may be some negative fallout for employees and their families.

Global watchlists and sanction list screening are important to global economic stability and security. Watchlist screening prevents criminal and terrorist elements from entering your databases through your KYC verification process, keeps you AML compliant, and helps you avoid fines, cyber threats, and fraud. PEP and sanction list screening protect against fraud, criminals, and terrorists minimizing false positives in your onboarding process and your institution’s financial and reputational damage.

Positive watchlist screening during customer onboarding results in AML compliance with all official regulations and watchlists. As Vincent Gaudel, compliance expert for Accuity warned, “There are personal risks for business executives who engage in willful sanction violations,”. Penalties for individuals can reach $20 million and 30 years in prison, Thomson Reuters reports. Turning a blind eye to sanction list screening to save money, time or avoid losing a potential customer is not worth the risk to your business reputation or bank account.

 

Important Global Watchlists You Should Be Watching

 

The US isn’t the only country that inflicts and enforces sanctions. Other countries, economic blocks, and world bodies are known for imposing economic unilateral and multilateral sanctions. For an international company, for better coverage, your PEP and sanction checks should include all countries you are currently doing business with. In the case of Business-to-Business (B2B) operations, the PEP screening process should include document verification and Ultimate Beneficial Owner (UBO) checks.

Some of the important global watchlists that should be part of your PEP screening process are: –

 

European Union consolidated list

  1. OFAC Specially Designated Nationals & Blocked Persons Consolidated List which includes;
    • Foreign Sanctions Evaders (FSE) List
    • Sectoral Sanctions Identifications (SSI) List
    • Palestinian Legislative Council (NS-PLC) list
    • List of Foreign Financial Institutions Subject to Correspondent Account or Payable-Through Account Sanctions (CAPTA List)
    • Non-SDN Menu-Based Sanctions List (NS-MBS List)
    • Non-SDN Chinese Military-Industrial Complex Companies List (NS-CMIC List)
  2. Denied person list
  3. Federal Bureau of Investigation Most Wanted Terrorists & Seeking Information
  4. Bank of England Sanctions List
  5. HM Treasury
  6. Non-Cooperative Countries and Territories
  7. PEP List
  8. EU Terrorism List
  9. World Bank Ineligible Firms
  10. Department of Foreign Affairs and Trade

 

This is not an exhaustive list as there are over 2000 global watchlists. Unofficial warning lists like the Ontario Securities Commission can also be taken into consideration. Since there are so many global watchlists to be screened, it is usually done by an independent body.

There are many companies and government agencies that perform PEP and sanction screening. In fact, the Department of Homeland Security (DHS) has a watchlist service that includes using the Terrorist Screening Database, the Federal Bureau of Investigations (FBI) Terrorist Database, and the US Government Consolidated Database with plans to expand into National Security, citizenship, and immigration. Their services, much like Google’s adverse media watchlist screening service, do not include identity verification or validation, which is crucial to an accurate PEP screening process.

 

How to Perform PEP and Sanction Checks?

 

Performing D-I-Y PEP and sanction list screening yourself is not doable and would not be recommended even if you are a Fortune 1000 company. Global watchlist screening or PEP and sanction screening are best handled either by the related government agency or a third-party global identity verification service that includes watchlist screening. How PEP and sanction list screening is performed exactly will vary based on the identity verification service provider.

The first step in the PEP screening process is identity verification as part of customer due diligence during the KYC verification process. In this global economy, global ID verification should be the preference. For the best possible match or result, alias or nicknames should be included as well as the data used should be updated and clean.

With validated document verification and adverse media screening for UBO’s as part of your risk mitigation efforts, you can increase your chances for positive identity verification of bad actors. Updated notifications of changes to your watchlists allow you to keep up with recent AML compliance standards. As part of our identity verification service, we keep abreast of these changes and assure you of AML compliance certification.

Manual PEP and sanction checks are not possible with the amount of government watchlist databases you need to check. During new customer onboarding, you need to have the entire onboarding process completed promptly. Therefore, using technology to perform PEP and sanction checks is not an option. Neither is requesting checks by each of these government agencies.

Through our API’s you can have access to many of these global watchlists and have PEP and sanction checks done seamlessly as part of our identity verification service. IDMaml can be used during new customer onboarding in your KYC verification process as part of your CIP program to meet AML compliance certification requirements according to the FINRA Rule 3310 in the Bank Secrecy Act. Adding IDMtrust and IDMkyb helps identify corporate entities and block stolen identities.

 

Stay Off PEP and Sanction Lists With IDMERIT

 

Verified global ID verification is the first step in an efficient KYC verification process and that starts with clean and up-to-date data. In designing your company’s CIP program, PEP and sanction screening naturally will be part of enhanced due diligence for high-risk customers identified during customer onboarding. At IDMERIT, we have access to the latest global watchlists and use artificial intelligence in our PEP and sanction checks for a completely automated and frictionless customer onboarding process.

As part of our identity verification service, we will help you design a CIP program that will include Know Your Business (KYB) and KYC verification that meets AML compliance certification requirements. For faster document verification and to validate ID in seconds, IDMscan can be used at the onset of your new customer onboarding process. By using our automated APIs, your customer can smoothly move into PEP and sanction screening and through your customer onboarding process with limited human interactions. Stay off sanction lists and get AML compliance certification with IDMERIT.

Talk to us today to learn more about the PEP and sanction screening process and AML compliance certification.

Jay Raol
Jay Raol

Jay Raol has been a Media Manager, Entrepreneur, Political Analyst and an Environmentalist. He aspires to climb the mighty Himalayas, and learn a new language every year. He lives in the beautiful city of Carlsbad in Southern California and owns a great collection of books. He is on schedule to publish his first book; 'Thou Art, Dope'. Co-founded two companies that provide futuristic solutions to the world while being quite enthusiastic about helping and investing in technology startups.

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