Conducting PEP checks: tools and techniques

pep check

In today’s global economy, businesses and individuals are expected to comply with a wide range of regulations and guidelines designed to prevent money laundering, terrorist financing, and other forms of financial crime. 

One of the most important of these regulations is the identification and risk assessment of Politically Exposed Persons (PEPs). Regulations require businesses to identify and verify individuals who hold public positions or are associated with high-risk individuals or entities. 

Compliance professionals play a crucial role in ensuring that their organisations comply with PEP and wider AML regulations. However, identifying and verifying PEPs can be a complex and time-consuming process, particularly for businesses that operate across multiple jurisdictions. 

In this article, we will explore some of the tools and techniques that compliance professionals can use to carry out PEP checks. 

What is a PEP check?

PEP checks identify any individuals who hold prominent public positions or have close associations with high-ranking officials, and their potential involvement in illicit activities can have serious consequences for businesses and financial institutions. 

Why are PEP checks important for AML compliance?

Identifying PEPs is crucial for AML compliance due to the elevated risk these individuals pose in terms of potential involvement in financial crime or money laundering. 

Utilise PEP databases 

One of the most effective ways to verify PEPs is to use databases that are specifically designed to identify and track these individuals. While government provided sources such as UK Parliament information, local authorities and councils will provide information on current holders of public office, this becomes more challenging when dealing with international customers or when identifying those with connections to PEPs such as family members or close relations. 

PEP databases typically contain information on thousands of PEPs from around the world and can be searched using a variety of criteria, including name, country of origin, and political affiliation.

Conduct enhanced due diligence 

In addition to using PEP databases, compliance professionals can conduct enhanced due diligence (EDD) on individuals who are suspected of being PEPs. EDD typically involves gathering additional information beyond what is typically required for a standard due diligence check. 

This might include conducting further assessment of the individual or their associates, reviewing public records, adverse media mentions, and examining the individual’s financial history. 

Use technology 

Advances in technology have made it easier for compliance professionals to identify and verify PEPs. One example of such technology is artificial intelligence (AI) software that can scan large volumes of data to identify potential PEPs. This software can also be used to track changes in an individual’s status, such as if they leave office or are no longer considered a high-risk individual. 

Implement a risk-based approach 

Finally, it is important for compliance professionals to implement a risk-based approach when verifying PEPs. This means that businesses should prioritise their due diligence efforts based on the level of risk presented by a particular individual or entity. For example, a high-risk PEP might require more thorough due diligence than a low-risk PEP. 

Verifying PEPs is a critical task for compliance professionals to ensure that they are complying with anti-money laundering regulations and reducing their risk of financial crime.

By implementing robust due diligence procedures and compliance measures to identify and monitor PEPs, businesses and financial institutions can mitigate the risk of being unknowingly involved in illicit activities or unwittingly facilitating the flow of illicit funds. 

Compliance professionals play a vital role in ensuring that organisations adhere to PEP regulations and maintain strong AML compliance standards, thereby safeguarding their businesses and the integrity of the global financial system.

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