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

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

When American President Joe Biden announced sanctions on Russia for invading Ukraine, opinions were diverse.  Some military advisers viewed sanctions as too tame for the current situation and others viewed the issue as not in line with what America needs and needs not to be involved in.

For those that viewed the American reaction tame, this is not the only time sanctions have been viewed as pointless or even counterproductive. And from a business perspective, sanctions list screening is probably seen as just another unnecessary cost on a business already plagued by pandemic problems. As much as you want to avoid hefty anti-money laundering (AML) compliance fines, you also don’t want the hassle of alienating paying customers.

 

Why Do You Need Sanction List Screening?

 

Since sanctions are usually done against an entire country, you may be thinking it’s easier to just not do business with anyone from the country. In one aspect, you may be right. However, sanctions don’t just include the physical country and world leader. It can encompass anyone who has done business with the country, individuals and businesses from the sanctioned country, past and present, and related individuals and entities.

In the case of Russia alone, that list before the 2022 sanctions, contained 735 sanctions for Crimea, approximately 170 for malicious cyber activity, and 37 for evading United Nations (UN) sanctions. This is from the United States alone and it doesn’t include UN sanctions or the current 2022 sanctions nor does it list exactly who is sanctioned. A little hint, Vladimir Putin isn’t the only name on the list.

That list extends into thousands of names of individuals and corporate entities that are not even based in Russia. Think about it in terms of your own business. Are you aware of every person your suppliers and distributors come into contact with? And what are they doing with your goods or money? Well, you should be and this is what sanction list screening does.

It is part of an in-depth risk assessment on individuals who are flagged in your customer onboarding process during Know Your Customer (KYC) verification. As part of enhanced due diligence, sanction list screening assists in identifying all the people you should not be doing business with due to the sanctions or ban on trade with these individuals and entities. Non-compliance can lead to fines, criminal charges, and you and your company ending up on a sanction list.

Unless you have gold or foreign currency reserves like Russia and China, sanctions are gonna seriously damage your company’s financial capabilities and business reputation. Because, even though you may not currently be aware of who is on every sanction list, we at IDMERIT, are aware if YOU made the list and so will all our clients and regulatory bodies. Therefore considering sanction list screening as unnecessary can cost you your business and put you among some very scrutinized companies right now.

 

Who to Look For in Sanction List Screening?

 

Performing sanction list screening should always be left to experts. There is no way for this to be manually done in a feasible time frame for effective customer onboarding or complete sanction checks. Plus, there is the added concern of regulatory reporting and digital identity security. This means you would have to know what type of people to look for on the list and what to do with the information collected.

Though the Office of Foreign Assets Control (OFAC) and the UN Security Council provides access to updated consolidated sanction lists, they don’t help you search nor do they identify relatives and close associates. In the case of OFAC, it only tells you which country and what rank of risk the person is. It’s left up to you to correctly identify this individual or entity before you start the process. Checking individual sanction lists would prove to be tedious and provide too many loopholes for misidentification and incorrect sanction list screening.

Now that the crazy dream of manual sanction list screening is out of the way, let’s identify the people you need to look for and the major sanction lists your screening process should include.

 

Politically Exposed Persons (PEP)

Politically Exposed Persons are easiest to identify as they are the people you see representing various government leaders, agencies, and their close family and friends. According to the Financial Action Task Force (FATF), PEPs are any individual who has been placed in a prominent public position by a domestic or foreign country. Once you hold any political office or have political influence you will remain on that list.

Since those positions are susceptible to AML offenses such as bribery and corruption, the FATF Recommendations require the application of additional AML compliance and Counter-Terrorism Financing (CTF) measures for business relationships with PEPs. These requirements are preventive (not criminal) in nature, and should not be interpreted as meaning that all PEPs are involved in criminal activity. This is why PEP sanctions lists with individual names and companies are not blasted across mainstream media.

 

Specially Designated Nationals (SDN)

Specially Designated Nationals and Blocked Person Lists consist of key persons and corporations that are associated economically or personally with the sanctioned country. Businesses and individuals are strictly prohibited from doing business with identified SDNs. Whereas PEP sanctions are not always restrictive, SDNs can ruin your business.

The reach of a single corporation could span the globe and without proper global ID verification during your KYC verification process. You wouldn’t know where to start in your PEP and sanction checks screening. This is why manual or DIY sanction list screening during KYC verification could land you on the SDN list yourself. Only an expert, automated KYC process with accurate PEP and sanction checks can prevent SDNs from being onboarded.

 

Adverse Media Watchlist

Being on an adverse media watchlist may not be as business-shattering as being an SDN. However, it depends on why you are on the list. Reasons for being on an adverse media watchlist can range from a simple office romance scandal to embezzlement or even high-stakes criminal charges. With an adverse media watchlist, that ‘why’ matters a lot.

This means participants on the list can be potentially damaging directly or indirectly to your business. Therefore stringent customer due diligence should always be considered during customer onboarding. Since there will likely be adverse media reports on individuals on PEP sanctions lists, there has to be consideration of factors beyond your scope. Hence the reasoning behind implementing an independent PEP screening process.

 

Checklist for PEP Screening Process

To start, don’t just screen for PEPs, but have access to as many sanction lists as possible. But even before that, you have to ensure your Customer Identification Program (CIP) is designed with enhanced due diligence to cater to a high-risk PEP screening process. Without proper ID validation systems, your PEP and sanctions checks will be off to a bad start.
Therefore to begin, you need an automated KYC verification process that provides widespread global ID verification in seconds. This means paying special attention to B2B customer onboarding and identity verification of Ultimate Beneficial Owners (UBOs). Global ID verification should also be part of Know Your Customer’s Client (KYCC) screening to catch potential associated threats.
Aside from global ID verification, your customers should also have a frictionless customer onboarding experience. The PEP screening process should not deter potential customers but have real-time identity verification with automated ID validation systems and digital identity security. Customers should have route options in completing the KYC verification process while still achieving AML compliance certification.
A major part of sanction list screening is of course the sanction list. There are numerous sanction lists across the globe. Some are governed by respective countries while others are part of consolidated group efforts of various government agencies, leaders, and even non-governmental organizations.

  • Key Global Sanction Lists
  • OFAC Consolidated Sanction Lists
  • United Kingdom’s HM Treasury Sanctions
  • UN Security Council Consolidated Lists
  • European Union consolidated Sanction List
  • Australia’s Department of Foreign Affairs and Trade (DFAT)
  • North Atlantic Treaty Organization (NATO)
  • Canada’s Office of the Superintendent of Financial Institutions Anti-terrorism Financing List
  • European Union’s External Action Service (EEAS) Consolidated List
  • Ukraine’s SDFM Terror List
  • US Central Intelligence Agency (CIA) World Leaders Pep List
  • World Presidents PEP List
  • Council of Europe (CoE) Parliamentary Assembly PEP List
  • Every Politician PEP List
  • Switzerland Consolidated List
  • Interpol Wanted List
  • Turkish Terror Wanted List
  • Interpol Yellow Wanted List
  • Interpol UN Wanted List

Wanted lists were included because part of the global effort against money laundering is counter-terrorism financing. PEP and sanctions checks are only the beginning of the PEP screening process. Ongoing behavior monitoring and regulatory reporting is the next step in a continuous cycle of customer due diligence to retain AML compliance certification.

 

Sanction List Screening Goes Beyond AML Compliance

 

Your business’s AML compliance certification isn’t the only thing you are risking with inefficient PEP and sanction checks. Politically exposed persons and their related associates are always being monitored by the media and their followers. And just by association, your company can be seen in a good or bad light depending on their political views. And if you doubt the potential risk, remember there was a certain company that was ostracized for supporting the previous US president.
Put your personal feelings aside because when you choose to do business with politically exposed persons, you have to consider the effect it will have on your company and prepare to end up on the adverse media watchlist or worse. This is why independent PEP sanctions are checked by experts or AI-directed software that can provide unbiased decisions based on risk scores and behavior monitoring for a more balanced and accurate view.
Digital identity security is another reason to invest in independent PEP and sanction checks. The information on these individuals must be handled delicately and professionally. Insecure databases can put the lives of their loved ones at further risk due to leaks. Corrupted data or improper B2B customer onboarding can lower or raise risk scores putting your entire identity verification system at risk.
Sanction list screening is not simply crossing a country off your not-to-do business list. It starts with accurate global ID verification, digital identity security, and the right amount of customer due diligence in your customer onboarding process. And achieving AML compliance certification isn’t the only reward of an efficient PEP screening process. Not only are you making it safer to do business with your company, but you are also making the world safer by restricting money laundering activities and the financing of global terrorism.

 

IDMERIT STANDS FOR GLOBAL FINANCIAL SECURITY

 

The entire world may not be fully engulfed in a World War, but your actions today can change who finances the next major conflict. As business owners, you are probably more concerned with the future stability of the world’s markets rather than where your customer is getting their money. After all, times are getting treacherous and you want to ensure your business survives.

And here at IDMERIT, we support your commitment to global financial security. Through the development of our IDMkyX platform of APIs that are designed for global ID verification, anywhere in the world. We can identify anyone with the highest degree of accuracy through any device. And assist in enhanced due diligence with ongoing behavior monitoring on politically exposed persons.

Given that Belarus has joined with Russia and the Worldwide Association for Interbank Financial Telecommunication (SWIFT) has imposed its sanctions, your sanction list screening process needs to swiftly account for these changes. We do this by having access to over 2000 global watchlists including OFAC’s and the UN Security Council’s consolidated sanction lists allowing for real-time identity verification. And with our secure databases, digital identity security and management will automatically be part of our identity verification service.

Despite the world’s current focus on the situation in Ukraine, eventually, global bodies will direct their focus to companies and individuals who supported the sanctioned countries and entities. Keep your company out of future PEP and sanction screening checks by partnering with IDMERIT. Talk to us today about our commitment to global financial security.

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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