October 16, 2023
Corruption is a serious problem across the globe. If you’re running an online business, you’ll need to pay attention to the history of your customers. Politically exposed persons, or PEPs, can use online businesses to launder money and conduct illegal activities.
While many entrepreneurs can say that their business is too small to be targeted, there’s always a certain amount of risk. PEP screening helps businesses recognise problematic customers and handle them according to the law.
This article delves into the complexities of high-profile figures and the process of recognising, handling, and monitoring them.
It’s obvious why you wouldn’t want someone potentially involved in criminal activities to be your customer. The reason why you should screen your customers whether they’re politically exposed personas is that there’s a greater risk that they’re involved in illegal activities.
PEP screening is a required part of know-your-customer verification, and failing to do this means that you won’t be compliant. This can lead to the termination of your business, fines, penalties, and reputational blows.
In short, you must implement PEP monitoring because you might be breaking the law without it. However, even if the lack of this process is alright with the law, it’s still important to prevent your platform from being exploited by wrongdoers.
Identifying PEPs can allow you to understand whether they have been involved in serious crimes, like money laundering or financing terrorism. If the answer is yes, you can then easily forbid them from using your platform.
On the other hand, if they are a PEP and they haven’t caused serious problems, you can allow them to use the platform, but monitor them more closely.
Overall, if your business happens to be victim of money-laundering activities, you can lose customer trust and integrity, which is why the implementation of PEP screening is essential.
To make sure that you’ve conducted your screening properly, we’ve created a concise checklist that will help you guide your process:
With the latest innovations in the field of tech, identifying has become easier and more streamlined. There are multiple methods that can help you recognise PEPs and report them to the relevant authorities.
A more advanced option for identifying high-risk individuals is through the use of AML tools. These tools are automated and can compare millions of new customers for short periods.
You can use PEP screening tools by integrating them on-premise or via an API. Of course, this method isn’t perfect, either. This software leverages algorithms that can flag individuals as false negatives and false positives.
Besides the speed, automated AML tools can be integrated and can continue with screening in real-time. You can receive automated and instant updates and alerts. AML tools automatically flag the risk that a customer poses based on their location and affiliations.
With the rise of artificial intelligence and machine learning, AML tools are becoming better at identifying suspicious transactions and customer activity.
Through using technology-driven solutions, you can scrape the internet for any mentions of the individual you’re verifying. This is important as it can unveil important information that can help you identify whether an individual is a PEP.
Global and local news sources can provide you with information on the individual’s arrests, cases, involvement with criminals, and other suspicious activities. This technology can better help you assess the risk an individual poses.
Instead of using dozens of tools that specialise in doing one task, integrated sanctions technology provides you with a centralised place for the screening process. It aggregates information from news, blacklists, and other sources.
This type of software can significantly streamline the process of recognising PEPs, as you won’t have to manually check different sources, and use multiple tools.
Manually analysing vast amounts of customers is time and resource-consuming. Checking ID cards of customers can be streamlined with the use of software. This allows businesses to accurately verify the identities of their customers.
Furthermore, this software also comes with features that allow real-time updates if an individual’s status changes. This also means that it’s updated with the latest information from relevant global sources on politically exposed personas.
Politically exposed persons can come from different locations. Although there are more ways in which we can categorise them, their country is important as it has additional implications in terms of how they should be handled.
Different countries have different classifications and regulations for politically exposed personas. Ensuring that these individuals aren’t causing harm is an international effort, and it’s essential to check them against sources from multiple countries and regions.
Pretty self-explanatory, domestic politically exposed persons are individuals who hold prominent positions in the country where your business is located. These can include the head of the state, senators, senior politicians, high-ranking military officers, political party officials, etc.
This type of high-risk person is easier to conduct a background search on, as you’ll have access to the necessary documentation from the local government and agencies. Furthermore, they’re more easily recognised, as it’s likely that they’re mentioned on the local news.
In countries that have a higher corruption index, weak institutions, or an autocratic regime, the risk that PEP poses is higher.
For example, the European Union explains requirements through the 4th AML Directive and 6th AML Directive. These directives explain that mandatory identification is required, and how these individuals are defined.
Similarly to domestic PEPs, foreign are individuals who hold notable positions in countries other than the one your business is based in. A strong reason why someone from a foreign country needs to be screened is because they might be involved in criminal activities there.
For example, they don’t have the means to conduct illegal business in their home country, so they opt for online businesses elsewhere. Different jurisdictions have different levels of transparency and laws.
Foreign PEPs can also be located in the country like your business, and they can be ambassadors or immigrants. A foreign ambassador can have some privileges, allowing them to conduct money laundering or other illicit activities.
Countries can be sanctioned for multiple reasons. They can use online businesses to smuggle funds, just like foreign PEPs. These individuals require additional screening, especially to ensure compliance with sanctions imposed by organisations like the United Nations (UN), the European Union (EU), and the Office of Foreign Assets Control (OFAC).
Furthermore, it’s essential to check whether someone is sanctioned individually, even if their country isn’t. These individuals are often sanctioned for international crime.
Online businesses, especially the ones in the iGaming and fintech businesses, provide customers with a plethora of advantages. However, these businesses are also at high risk of being exploited by criminals and hackers.
PEP screening ensures that if a suspicious individual creates an account on your platform, you’ll be able to recognise it on time and take action. Failing to achieve this can lead to serious problems with the law and even to bankruptcy.
Regardless of your traffic and industry, it’s crucial that you conduct proper screening through the methods mentioned below to minimise the chances of becoming a victim of fraud or money laundering.
