One of the most underrated and painful (for the merchant) parts of the KYC process is PEP screening and sanctions checks. A mistake in the PEP and sanctions step of the process could be translated into nefarious activities such as money laundering, terrorism financing, corruption, and bribery.
Now, more than ever, merchants and organizations can’t neglect PEP and sanctions screening in order to avoid taking a hit on their reputation, revenue and capital. Just how much of a hit could they possibly suffer? Let’s look at some examples that can contextualize the damage for you.
The Cost of Disregarding Sanctions Lists Checks & PEP Screenings
- US-based watchdog Financial Industry Regulatory Authority (FINRA) fined BNP Paribas Securities and BNP Paribas Prime Brokerage $15M, for failing to provide sufficient anti-money laundering (AML) and supervisory systems.
- In 2015, Barclays PLC was fined over £72 million for poor handling of financial crime risks by the Financial Conduct Authority (FCA).
- UniCredit was fined $1.3 billion to settle U.S. sanctions probe.
The numbers are hard to swallow and even harder to digest. What’s the only way to stay away from such scary scenarios? Make the most of Artificial Intelligence (AI) solutions that can once and for all put your PEP and screening worries to bed.
Before investigating how this technology can help you, let’s get some definitions out of the way.
A comprehensive screening approach includes both types of checks:
- PEP screening is the process of picking out Politically Exposed People or other high-risk individuals who are eligible for Customer Due Diligence (CDD).
- Sanctions screening is the process flagging the names of individuals who are found on sanctions lists, stopping them from making financial transactions.
What is a Politically Exposed Person (PEP)?
According to the FATF Recommendation 12, “a PEP is an individual who is or has been entrusted with prominent public functions.” That could be a President, a Prime Minister, or a government official. Due to the seniority of their position and the power associated with it, PEPs hold the keys to influencing major decisions and are therefore more prone to things like bribery, corruption and money-laundering. Due to their sensitive positions, PEPs, as well as their families and close people should be regularly checked and screened.
What is a Sanctions List?
A sanctions list is a record of people, businesses and countries that are wanted for or have committed illegal activities. These lists are usually published per country and/or regions and go public in order to help countries stop international financial crime.
As an organization or a merchant, screening potential customers against sanctions lists is essential in order to eliminate the risk of doing business with entities that are flagged for illegal activities.
We can sense what the next questions will be:
- Where can we find these lists?
- How can we keep track of when those are updated?
This is where technology comes into the picture. PEP and sanctions lists come from places such as Her Majesty’s Treasury, the European Union, the Office of Foreign Assets Control (OFAC), United Nations, and even more regulatory bodies. As you can imagine, doing this manually is mission impossible. Let’s see how artificial intelligence can simplify and automate this process.
How Artificial Intelligence Is Simplifying PEP & Sanctions Checks
First and foremost, the service provider you choose to partner with will be digitally connected to the databases and external data sources of the PEP and sanctions lists. If you are thinking about a simple search, filtering the results, you are only getting the first part of the process correct.
A traditional name search is too simplistic for the era we live in. Companies need way more than a name. They need context, they need analysis, they need conclusions and more information in order to build comprehensive risk profiles for their potential customers.
This is where Natural Language Processing (NLP) and Artificial Intelligence (AI) technologies come in, in order to analyze unstructured data and extract the information from these lists. The tech is able to optimize and automate the process, making these lists multi-dimensional uncovering layers and layers of information that would otherwise remain undiscovered.
Identomat PEP & Sanctions Checks
Artificial intelligence is at the core of the Identomat offering and PEP and sanctions lists is something we know very well. It is a part of our solutions and our team is always available to discuss how you can include it in your KYC process.