As business grows increasingly digitalized, KYC protocols become increasingly important. Managing high-risk accounts and cash-intensive clients is a massive undertaking with multiple inherent risks, but knowing your customers will enable your company to significantly reduce and control multiple risk factors, including OFAC sanctions and fines, which can exceed $1 million
. To minimize risk and ensure that potential and current clients are not involved in illegal financial activities, companies screen each client. This screening allows companies to assess and mitigate the potential risks of doing business with politically exposed persons, or PEPs. Politically exposed persons are individuals who hold prominent positions and could be at risk for involvement in bribery, money laundering, corruption, terrorist financing or other illicit monetary activities. In addition, close personal or business associates of PEPs are also considered at-risk for being involved in financial corruption.
PEP (Politically Exposed Persons) screening is now a key component of KYC and AML protocols. Understanding exactly who your clients are and the risks they pose will enable your company to focus its compliance efforts and minimize its risk of involvement in illegal activities. If your company is in the process of working with identified PEPs, these clients will inherently increase your risk. To ensure ongoing compliance and mitigate illicit financial activity risks for PEP clients, the Financial Action Task Force (FATF) requires that companies implement internal controls that include the application of AML and Countering the Financing of Terrorism measures. These PEP screening efforts are preventative, meaning they should not be interpreted to imply that all politically exposed persons are automatically involved in illegal activities. Rather than precluding or discouraging any company from working with PEP clients, the FATF requirements exist to ensure that companies operate within an increased level of due diligence and protocols to minimize potential risks.
Basic Criteria for PEP Classification
The Financial Action Task Force (FATF) classifies PEPs in 3 categories: foreign, domestic, and international organization PEPs. The United Nations Convention Against Corruption (UNCAC) extends the definition of PEPs to include family members and close associates of prominent public individuals. Yet even within these guidelines, creating a definitive list of PEP classification is difficult because no universal international or federal regulations exist. PEP definitions vary from country to country, criteria are broad, and each country may have different local PEP regulations that you need to comply with when doing business in that region. To further complicate matters, the FATF issues frequent recommendation updates. Lastly, while PEP data can be publicly sourced from media lists or government-issued PEP lists, it can be extremely taxing for compliance teams to manually compile and screen this information.
These factors can make it extremely difficult for compliance teams to create global policies that meet PEP due diligence standards. To break these categories down even further and help your team identify potential PEPs, EVS has compiled a helpful list of PEP identifiers:
- Members of legislative government bodies, such as Senators and members of Parliament
- Members of executive government bodies, such as Mayors and cabinet ministers
- Members of judiciary government bodies, such as judges and Supreme Court members
- Ambassadors or other diplomatic representatives
- Members of state-owned enterprises, such as Board of Directors members
- High-ranking military officers
- Board members, auditors or financial regulators of central banks, reserve banks or other monetary authorities
- Senior officials of major political parties
- Any close associates of the above-mentioned positions
Risk Solutions for Politically Exposed Persons
As clients move into new roles, family members change, federal regulations and FATF recommendations are updated, and the international landscape changes, your company’s list of potential PEPs can be expansive and continually in flux. Unfortunately, proper investigation of these clients—as well as their spouses, siblings, friends, children and past or present business partners—can easily overwhelm compliance teams. It takes an enormous amount of labor and time to research and develop the necessary client risk profiles that enable companies to apply appropriate policies, procedures, and processes to manage and mitigate risk and meet compliance regulations.
To help companies more easily and thoroughly mitigate risk and ensure compliance, EVS recently launched PolitiWatch, a new product that implements a risk-based approach to PEP screening. PolitiWatch provides our customers with ongoing risk-based monitoring to maintain and update customer information. The product enables EVS’ clients to identify associates, friends, “seen with” acquaintances, family members, business partners or employees of a PEP, both past and present. PolitiWatch also returns detailed information about each PEP, such as addresses, aliases, positions held, relationship status and risk levels. If your compliance team is interested in seeing how EVS can provide greater value, simplicity, and flexibility to your identity verification solutions, connect with the EVS team today