When carrying out Anti-Money Laundering checks on clients, all regulated industries must identify PEPs and sanctioned individuals during onboarding, to comply with KYC and AML requirements.
In this post, we take a deep dive into what they are, who meets the criteria, and explore best practices for your firm, safeguarding you and your business from any financial or reputational perils.
What is a Politically Exposed Person?
A PEP is an individual who is or has been entrusted within a prominent public institution, making them susceptible to corruption. Under anti-money laundering legislation, if a client is identified as a PEP, enhanced due diligence (EDD) is required.
Who specifically classifies as a Politically Exposed Person?
Overall, the list of PEP individuals includes, but is not limited to, heads of states, heads of governments, ministers, MPs, members of high-level judicial bodies such as high courts, as well as family members and close business associates of all the above.
Based on Money Laundering Regulations and UK Government guidance, PEPs are listed into tiered categories depending on their role. For example, Heads of State and Government would be regarded as Tier 1 while mayors and members of local councils would be Tier 4. Under UK Government guidance the expectation is firms should be identifying Tier 1 & 2 PEPs as a minimum.
My firm has identified a PEP, should we cease working with them?
If your client has been flagged as a PEP, you should apply enhanced due diligence measures to the case. This will differ on a case-by-case basis, but this does not automatically mean you should cease business.
Law society guidance suggests you must:
- Get senior management approval for the business relationship
- Take adequate measures to establish the source of wealth and source of funds
- Closely monitor the business relationship throughout
If you know or suspect a money laundering offence is taking place, you must make a disclosure to your firm’s money laundering reporting officer (MLRO).
What about Sanctions?
In addition to enhanced due diligence, all firms are also required to ensure they are not working with sanctioned individuals.
Sanctions and sanctions lists serve as a critical safeguard against financial crime. Businesses use sanctions checks to prevent themselves from getting involved with sanctioned entities. This way, businesses not only avoid the risk of non-compliance fines but also safeguard their reputation in the process. Conducting both PEP and sanction checks is crucial for businesses to minimize the chances of engaging with high-risk individuals or entities and to maintain a robust due diligence process.
Where I can I find out more?
OneSearch AML empowers you to navigate the complexities of due diligence with ease. Our innovative technology simplifies the onboarding process, saving you valuable time without compromising security.
