Almost all businesses want to protect their assets and reputation worldwide. Many countries ignore the screening of Politically Exposed Persons (PEPs). A Politically Exposed Person is a high-ranking government official or an executive of a government-owned company. However, PEPs on an ongoing AML pose more significant threats. PEP Screening walks through the ins and outs to protect businesses against potential threats. PEP list screening finds that around 2.3 million individuals are suspected to be Politically Exposed Persons (PEPs). Of these 2.3 million suspected PEPs, 1.3 million might be involved in money laundering cases. In this PEP screening guide, we'll look into more detail about the best PEP Screening method, challenges, and practices. 

What is the PEP List?

Names of Politically Exposed Persons (PEPs) and their closely associated individuals are compiled in a list which is known as the PEP List. PEPs hold high-profile public positions within or outside the country. PEP screening software, available in different government sectors, generates a list for screening and monitoring. This list is used to identify the risks associated with these individuals. PEP compliance program and PEP checks regularly monitor and update the list, indirectly reducing activities like corruption or money laundering.

Causes of PEP Screening

Reasons for conducting Politically Exposed Person (PEP) screening are: 

  • Identify and manage the risks associated with prominent public positions.
  • To prevent money laundering because of political influence in financial systems.
  • To comply with AML regulations to avoid legal consequences, fines, and reputational damage
  • To maintain the integrity of financial systems

PEP Compliance Program

PEP Compliance is the process of monitoring Politically Exposed Persons (PEPs). PEPs are verified through different AML (Anti-Money Laundering), Know Your Customer and Customer Diligence procedures. In the PEP compliance program, the extent of risk associated with PEP individuals is determined. 

Challenges to PEP Screening 

PEP Screening has its challenges. With the advancement in regulatory compliance, requirements are becoming more strict businesses now find difficulties adopting an efficient screening process. 

  • Millions of individuals are classified as PEPs, resulting in huge lists. This huge data volume is the biggest challenge in PEP screening. Although PEP screenings have now become digital, manual sifting is still done, which is time-consuming. Businesses have to struggle with such large databases, which can be offensive. PEP screening solutions introduced advanced technology to speed up the process, which is easily managed by businesses.
  • The status of PEP individuals keeps rotating. This requires up-to-date PEP lists up-to-date outdated information increases the risk. Up-to-date lists help businesses stay ahead of changes in PEP status.
  • Regulatory requirements are becoming strict daily, and meeting them is a hell of a task now. Screening processes should align with these requirements. Failure to do so can result in legal consequences. The PEP Compliance program includes regular audits and training programs.

Which Organizations Produce PEP Lists?

Ukraine led the battle against corruption and became the first country to introduce a list of Politically Exposed Persons (PEP).  On a National level, many countries compile their PEP lists for domestic regulatory purposes. Organizations like the United Nations (UN), World Bank, and International Monetary Fund (IMF) maintain a list of PEPs on a global scale. Financial Intelligence Units (FIUs) identify and monitor financial transactions in different countries. Private companies, such as Dow Jones and Thomson Reuters, compile comprehensive PEP lists from various sources worldwide. PEP sanctions lists are issued by governments targeting economic or trade restrictions.

Best Practices for PEP Screening

PEP Screening in risk management and compliance needs the best practical approaches. Businesses should implement these practices for protection against financial risks.

  • Use Comprehensive Lists compiled by reputable sources that are updated regularly to get more accurate results. 
  • Incorporate Advanced Screening Technology to automate and speed up the screening process. Automated platforms quickly verify the individuals against global PEP and Sanctions lists with minimum errors.
  • Seamlessly integrate these screening procedures into the company's Know Your Customer (KYC) procedures. This approach identifies and assesses the financial risks associated with clients and customers.
  • PEP screening measures should be used to monitor the status of PEPs and quickly identify expected risks for businesses. 
  • Establishing clear compliance protocols like regular training programs and internal audits well-versed in the compliance procedures.

Conclusion

The PEP screening process protects the business against money laundering threats and shows commitment to regulatory compliance. PEP screening is necessary for managing risks worldwide. Technology is power, and the PEP screening method creates a proactive approach to maintaining and updating information, regulatory compliance, and seamless integration of screening processes within a business.