The 6-Step Process of PEP Screening

When it comes to the security of finances, PEP screening checks step as caretakers against illegal activities. PEP screening, or Politically Exposed Persons screening is a thorough process of analyzing people who serve in high offices or are connected to people who do so. Because of their power roles these people are more likely to contribute to corruption or money laundering.

Around 12 million individuals around the world are termed as PEPs according to the Financial Action Task Force (FATF). 

PEP screening checks help in finishing off the dangers that come with PEPs. By investigating people with political connections, businesses can protect their reputations and maintain regulatory compliance.

Because of the increasing financial crimes AML PEP screening solutions have come to the rescue. These solutions work on AI and Machine Learning and help increase the accuracy of PEP screening processes.

According to a report published by the World Bank in 2018,  PEPs are involved in 1 out of every 5 corruption cases.

AML PEP screening solutions have a very detailed approach to managing risks. They integrate different information sources and make use of advanced algorithms to recognize PEPs. Moreover, these solutions allow monitoring in real time which makes it easy for organizations to detect suspicious activities and counter them at the same time.

PEP Screening has great benefits for businesses. Learn how it improves compliance. 

The PEP Screening Process

The PEP screening process is based on 6 main steps to identify Politically Exposed Persons (PEPs).

1. Data Collection: The first step in the PEP screening process includes collecting information about clients, customers, or counterparties. This information includes their names, addresses, dates of birth, nationalities, etc. Data about their business affiliations, family ties, and political roles is also collected.
2. Database Screening: When the information is gathered, it goes through screening against different data sets and watchlists containing PEP-related data. These information bases include government-sanctioned records and various data sets. The screening process helps in recognizing any potential matches.
3. Risk Assessment: The recognized matches are then put through assessment to see the degree of risk related to the person’s political exposure. This can include running checks to see if the person has been involved in illegal practices before.
4. Enhanced Due Diligence (EDD): When a PEP is seen, EDD is done to get more detailed information about the PEP and look into their transactions and sources of wealth.
5. Documentation and Reporting: Detailed documentation is done throughout the screening process. If any suspicious activity comes under notice, it is quickly reported to the authorities dealing with AML and KYC guidelines.
6. Ongoing Monitoring: PEP Screening goes on and on as regular checks are necessary. It is important for organizations to continuously monitor their customers to make sure that no change in their status or profile is missed. Regular checks must be done against the PEP datasets and the watchlists.

PEP screening programs are very helpful in identifying high-risk people, with a hit rate of 20% according to a 2020 report by the Basel Institute on Governance. Find out how you can stop money laundering with PEP Screening.

HSBC Money Laundering Scandal

One well-known case of checking for politically exposed persons (PEPs) includes HSBC. They got in trouble for dealing with billions of dollars from suspicious sources, like PEPs from countries that were known for corruption.

HSBC’s branch in the US  overlooked many warning signs about transactions connected to drug dealers, people selling weapons, and countries that were sanctioned. A part of these deals also involved PEPs. Despite several internal alerts, HSBC kept offering banking services to these clients without screening them or observing their activities.

In 2012, US authorities fined HSBC $1.92 billion for breaking rules connected with anti-money laundering. The bank had to deal with a damaged reputation and also gained negative attention for helping criminals commit crimes.

PEP Screening Checks – Final Verdict 

The PEP screening system plays an important part in protecting the integrity of financial institutions around the world. By using it as a part of their diligence practices, you can identify dangers and eliminate them before they become bigger problems. This not only saves you additional costs but also protects your reputation. Make PEP Screening Checks a part of your organization and sit back and relax! Bid farewell to the PEP-related worries and explore AML Watcher now.