Essence Of PEP Screening | SMART Infotech

How do you curb financial frauds done by people from political backgrounds without identifying them? How do you realize that your platform is getting used by people of prime importance as an easy way to launder money? 

That's where the process of PEP Screening comes to your aid. PEP screening is the process via which a platform identifies whether the user on their platform is a Politically Exposed Person (PEP). To avoid your platform from getting used for money laundering or other criminal activities like terror financing, PEP screening is important. Though, that does not conclude that all the PEPs are involved in criminal or fraudulent activities. Screening for politically exposed persons is a crucial task of financial institutions' Anti-Money Laundering (AML) initiatives. Politically exposed persons' screening requirements may also apply to their close relatives and associates (CRAs).  Although, that becomes a very arduous task as peoples' relationships with each other change over time.

PEPs can include

• heads of state, heads of government, ministers, and deputy or assistant ministers
• members and management of a state-owned enterprise
• members of the judiciary
• high ranking officers in the armed forces and their close relatives.

Generally, PEPs are categorized in the following manner:

• DOMESTIC: People who own political titles in their own country of residence usually come under this category. Head of the state, members of a political party, members of the military are some examples of domestic PEPs.

• FOREIGN: Just like the domestic PEPs, these are also the people of political importance but in a foreign land and not in their country of residence. 

• INTERNATIONAL: Senior employees with prominent positions in world organizations occupy this category. 

PEP Screening is important because people with political backgrounds have more opportunities to earn illegal income via unfair means like money laundering, terror financing, bribery, and corruption. As business organizations that fail to apply a proper PEP screening procedure can face heavy penalties, it becomes necessary for every platform to comply with the policies of their respective governments. It isn't considered good for any business's name to be involved with any fraudulent or criminal activities, and in some cases, it can lead to a total ban on their business activities. Hence, PEP screening cannot be ignored.

At the minimum, the following information is needed for PEP screening.

• Customer's name 
• Customer's date of birth
• Customer's gender
• Customer's country
• Politically exposed roles, appointment dates, and resigning dates

PEP Screening can be a very complicated and tedious task. But these days, certain advancements are being done to make this easier. Like the introduction of software like AML-TRACE which makes the process quite simpler. It easily integrates with your existing KYC processes. AML-TRACE also has a feature for the Enhanced Due Diligence (EDD) investigation process for high-risk customers. This enables organizations to fulfill their KYC/CDD objectives while achieving regulatory compliance. AML-TRACE can help applications to sort databases with an extensive search and can accurately report the presence of a PEP or a CRA. 

PEPs are high-risk clients and their presence needs to be checked periodically. AML-TRACE can simply sort these high-risk clients out, thus reducing the risk of non-compliance.

Law states that if your client is a PEP, you should:

• Involve senior management before starting your business with them.
• Initiate adequate measures to identify the source of their funds, because generally the remuneration provided to a government official is known.

The right PEP screening policy can help your financial institution to identify PEPs that might pose threats. You can reduce those threats and comply with rules and regulations to ensure that your institution can continue successfully doing business.