While there is no single, globally agreed definition of a politically exposed person (PEP), according to the Financial Action Task Force (FATF) it refers to any individual who is or has been entrusted with a prominent public function.
As they hold a position of power and authority that they are more likely to be involved in illegal activities such as bribery, corruption, and money laundering. It is because of the risks associated with PEPs, that the FATF Recommendations require the application of additional AML/CFT measures whenever conducting business relationships with PEPs.
The FATF requirements are preventive and not criminal in nature, so you should not automatically assume that all PEPs are involved in criminal activity. Having said that, doing business with a PEP carries with it far higher risk and therefore requires far greater scrutiny.
Uncover the risk posed by a PEP in just five steps
The complex network of a PEP is similar to the layers of an onion; you need to examine each and every layer in order to understand the overall risk that you face.
Robert Mitchell, RiskScreen’s Executive Vice President of Sales, has defined five steps that will help you to peel back each layer in order to identify and mitigate the risk potentially carried by PEPs, using the acronym T-I-G-H-T.
- ‘T’ – the Type and extent of any interactions the PEP has with officials. You need to employ identification using a world-class database such as Dow Jones or Refinitiv World-Check. In addition, ask lots of questions to discover who they are and see if there are any adverse media associated with them? Find out how did they got to their position, how they earned so much money, and what is their source of funds?
- ‘I’ – the Industry that earned the PEP their money. You also need to include any family members or business associates that are linked to the PEP. Keep a special look out for higher risk sectors such as Mining, Hydrocarbons, Armaments, Telecoms, Construction, Water Resources, Healthcare, Railways, Construction etc.
- ‘G’ – the Geography and jurisdictions involved. Most PEPs who have been investigated for illegal financial activities come from corrupt countries. As a result, pay close attention to PEPs in countries that sit in the lower quartile of Transparency International’s Corruption Perception Index.
- ‘H’ – the History of the PEP. Has the PEP, or the introducer or any family members, had any previous allegations made against them? Find out if there have been any public compliance failures at the businesses involved in the transaction, if there have been any previous wrongdoings or internal controls issues, or if their lawyer has been under investigation by the Solicitors Regulatory Authority?
- ‘T’ – the Transaction. Examine the details of the transaction and all the parties involved – the beneficiaries, trustees, lawyers, advisors and even the agents.
Using these five steps, you can more accurately monitor and remediate PEP risk – before it becomes an issue.
Webinar: Managing PEP Risk in Light of the Pandora Papers
The impact of the Pandora Papers on the world cannot be underestimated. Since they were released, PEP business has come under far greater scrutiny and is now considered to be high risk. As a result, every business must implement rigorous processes and procedures to protect them from the consequences of doing business with PEPs who have succumbed to corruption, bribery, or any illegal activity.
The five steps outlined above are just one part of an overall risk mitigation strategy that was presented by Robert Mitchell in a recent webinar. You can watch a replay of this insightful webinar and discover for yourself the key pillars of risk mitigation strategies, what the right technology should include, and the many rigorous processes and procedures that you should have in place.
How technology can help
The identification and monitoring of customers and entities for potential links to PEPs requires rigorous, accurate, and ongoing monitoring. As a result, outdated manual processes are no longer fit for purpose, it is now crucial that all businesses update and automate their processes.
When considering any vendor technology, ensure that their solution includes the following:
- Nightly screening and alerts covering PEP, Sanction, and Watchlist data from an extremely reputable source such as Dow Jones
- A live adverse media monitoring function, so that any negative news about your PEP comes to your attention by the next morning
- All onboarding documentation must be consolidated and secured in a single location
- The latest electronic identification (eIDV) for the fast, efficient verification of an individual’s identity
- A risk-based review of every party involved in the organisational structure
- All onboarding and ongoing screening must be auditable, so you can demonstrate to the appropriate authorities the steps you have taken, when, and by whom
The identification and ongoing monitoring PEP risk is a vital element of your overall screening strategy and must include the implementation of a leading-edge automated AML & KYC screening solution.
The ever-evolving compliance landscape has resulted in more sectors finding themselves under scrutiny from the world’s regulatory bodies. Failure to meet statutory regulations, can not only result in punitive fines, but can result in long-term reputational damage.
For a no-obligation demonstration of how RiskScreen can help you to screen your clients for PEPs, sanctions, watchlists, and adverse media, contact us today.
