Politically Exposed Persons (PEP) meaning are high-risk clients with more opportunities than ordinary nationals to gain assets through illegal means like bribe-taking and money laundering. Classifying a potential client as a PEP doesn't mean that a corporation can't work with them. PEP control is only part of the process that allows financial institutions to conduct a complete risk assessment, and awareness of red flags is essential in this assessment. Sometimes matching just one of these politically exposed person indicators might be linked with financial abuse.
There are 3 different types of pep defined by FATF. These are;
Individuals entrusted with prominent public functions by a foreign country, such as Heads of State or government, senior politicians, senior government, judicial or military officials, senior executives of state-owned corporations, and important political parties officials. Also, foreign PEPs are always a high risk.
Individuals entrusted domestically with prominent public functions, such as Heads of State or government, senior politicians, senior government, judicial or military officials, senior executives of state-owned corporations, and important political parties officials.
Persons who are or have been entrusted with a prominent function by an international organization refer to members of senior management or individuals who have been entrusted with equivalent functions, i.e., directors, deputy directors, and members of the board or equivalent functions.
Every regulated corporation must fit the guidelines while working with a politically exposed person. After the client is uncovered as a PEP, corporations are responsible for ongoing due diligence fitting the status. Financial Action Task Force is an intergovernmental AML/CFT institution regulating financial crimes. It is also a fundamental reference for any other regulatory action.e
All of our PEP scans are performed by FATF rules, depending on their risk level. Political Exposed Person risk categories:
Compliance software such as Sanction Scanner helps you to comply with regulations. Sanction Scanner AML screening complies with all global and local regulations such as FATF, FINMA, and FCA, minimizing false positives.
Financial Action Task Force has introduced red flags of Politically exposed persons to help corporations detect illegal activities. Based on their information matching, several of these indicators should raise some suspicions. In some cases, it might even lead to PEP money laundering. A particular nation or state may also have its own indicators for suspicion that must be considered crucial.
According to the FATF, the measures that will enable companies to detect and control these people:
Identity Shielding: As PEPs are aware of their status, sometimes they try and hide their identity or avoid being in the spotlight. For example:
Position in the Company: Position can become a reason for concern.
The Industry: Industries being considered high-risk depending on the place and varies from nation to nation. Instances of higher risk industries are;
Transactions: The way receives or uses money might expose a lot about them:
Services and Products: FATF deemed some of the products and services are prone to risk and vulnerable to being used;
Local Indicators: The FATF explains how some countries are considered high risk based on geographic risk factors.
Financial crimes pose major threats all over the world. Anti-money laundering regulations include firms' obligations to combat financial crimes. Institutions have to detect customers, and for this, they need Political Exposed Person screening during customer account opening processes. AML regulators punish organizations that do not follow these screening procedures.