In the realm of AML (Anti-Money Laundering), compliance for sanctions screening and PEP (Politically Exposed Person) screening are critical steps in the operational procedure, intended to protect financial institutions and businesses from risks of high magnitude. While both processes are essential for due diligence and as well as risk management, they fulfill unique functions.

What is Sanctions Screening?

Sanctions screening is crosschecking persons, organizations, and entities against lists published by governments and international organizations containing sanctions against certain individuals or entities. Such lists typically include the names of individuals or companies involved in illegal activities such as terrorism, drug or human trafficking, and severe human rights violations.

Sanctions screening is absolutely necessary because dealings of a sanctioned identity may lead to penalties, legal issues, and loss of reputation. Therefore, regulatory authorities have put rules in place that require firms, both financial firms and designated non-financial businesses and professions (DNFBPs) to carry out sanctions screening checks before onboarding clients, carrying out transactions, or establishing business relations.

What is PEP Screening?

PEP screening is the process of identifying and assessing individuals with political exposure, along with their associates, by cross-referencing their information against global PEP databases and conducting risk assessments. Due to the stature held by these individuals, there is a higher chance that they could engage in bribery, corruption, or even other financial crimes.

Unlike sanctions screening, being a PEP is not a crime. PEP screening is an enhanced due diligence (EDD) process, as it is expected from business to use greater care in supervising the financial transactions of those who are categorized as PEPs. This assists in curbing the chances of money laundering and other corruption activities.

PEPs can be classified into different categories:

Domestic PEPs are individuals occupying political offices in a particular country.

Foreign PEPs are individuals holding political or relevant offices in another country.

International PEPs are officials working in international organizations such as the UN or the International Monetary Fund (IMF).

Close Associates of PEPs are individuals with significant relationships to a PEP, such as business partners, advisors, or personal associates.

Family Members of PEPs include immediate family members such as spouses, children, parents, or siblings of a PEP.

Because these high-risk individuals have influence over public funds, businesses need to understand their potential risk exposure and implement appropriate measures to monitor PEPs.

Differences Between Sanctions Screening and PEP Screening?

The focus of sanctions screening is placing undue financial restrictions on persons and entities involved in illegal activities. This is a harsh legal obligation which, if neglected, can result in substantial fines or prosecution.

PEP screening, on the other hand, deals with determining people who are most likely to be a threat because of their associations, high status and political activities. Unlike sanctioned people, PEPs are not restricted from undertaking any financial activities, however, their dealings are subject to some level of oversights to mitigate misuse.

Both screening processes target increasing financial crimes, but while sanctions screening applies legal restrictions, PEP screening is done on a monitoring basis. As a result, the nature of both measures set out certainly, enhances adherence with AML compliance regulations and protects the organization from financial and reputational losses.

In Conclusion

Managing both sanctions and PEP lists is instrumental in the development of an efficient AML compliance system. Sanctions screening assists in avoiding transactions with certain designated persons or entities, and PEP screening assists with the closer monitoring of suspicious activities by high-risk individuals.

Finch Innovate’s AI-powered AML name screening portal, FinchSCAN enhances this process by providing advanced, automated screening capabilities. FinchSCAN utilizes the robust risk intelligence dataset to screen names against the global sanctions, adverse media or PEP lists.

FinchSCAN empowers organizations to make faster and more informed decisions.

To explore more about FinchSCAN, please visit our website: www.finchscan.com