Mar 2024 | Identity and Fraud | CrossCore

Accurately identifying politically exposed or sanctioned persons is critical to reduce risk and comply with KYC and AML regulations. Read our Q&A guide for more.

A basic guide to PEPs and sanctions screening

In today’s world of heightened geopolitical and fraud threats, conducting thorough PEPs and sanctions checks is not just a regulatory requirement but a proactive step to maintain trust and ensure the integrity of your business within the global financial ecosystem. These screening processes serve as a vital safeguard against illicit activities.

By identifying and monitoring PEPs, you can mitigate the risk of being unknowingly involved in corruption, money laundering or other fraudulent activities. Sanctions screening can help prevent any association with organisations or individuals that are under sanctions – to protect your business, reduce legal and reputational risks, and avoid potentially large fines.

This article explains the key terms involved with PEPs and sanctions screening in a Q&A format. For a deep dive into this topic, please read our comprehensive PEPs and sanctions challenges guide, with expert advice from an Experian specialist.


Understanding PEPs and sanctions: key questions

What are PEPs?

Politically Exposed Persons (PEPs) are individuals who have been entrusted with prominent public positions or have held positions in the recent past, exposing them to potential financial corruption. These individuals could range from heads of state, such as prime ministers and presidents, to city mayors, religious leaders, or local government officials.


What are the risks of conducting business with a PEP?

PEPs usually have access to resources and political power and, as such, could influence policy or people. This can potentially present a risk to your business. However, it is not prohibited to do business or provide financial services to someone who is a PEP, but greater caution should be taken when dealing with them.

Another concern is that they are more at risk of impersonation. As public individuals, a lot of their personal information is available online – which makes them a prime candidate for impersonation. This risk has been exacerbated by the recent advances in deepfake technology. Therefore, if an individual flags as a PEP, you may wish to carry out additional due diligence checks to ensure you are dealing with the genuine individual.


Is it only the PEP that represents a risk?

No. Relatives, such as wives, husbands, children, and wider family members, as well as close associates, such as business associates and employees of a PEP, could present a risk to your organisation. AML regulations state that these individuals should also be checked and monitored to the same level as the PEP.


What are sanctions?

Financial sanctions are punitive or restrictive measures designed to maintain or restore international security. These measures are typically deployed in response to activities deemed unacceptable, such as violations of international law, human rights abuses, or threats to global peace. Sanctions can take various forms, including trade restrictions, asset freezes, travel bans, and financial penalties.


Who issues sanctions?

Governments and international organisations such as the United Nations, the European Union and the Organisation for Security and Cooperation in Europe (OSCE).


What are sanctions lists?

Sanctions lists are a directory that contains all the individuals and entities (organisations, aircraft, banks and vessels) that are subject to restrictive measures. The lists also contain additional information about the sanction. For example, if the order prohibits businesses from providing financial services to the person or organisation.


How do PEPs and sanctions screening relate to Anti-Money Laundering (AML) processes?

Sanctions screening is an integral part of the AML process, which is designed to detect and prevent the disguising of criminally obtained money, typically through transfers involving foreign banks or legitimate businesses.

It helps organisations comply with regulatory requirements, mitigate risks, and contribute to global efforts to combat money laundering and terrorist financing. Sanctions screening focuses on identifying and thus preventing any transactions with individuals, organisations, or countries that are subject to sanctions.


How do PEPs and sanctions screening relate to Know Your Customer (KYC) and Due Diligence (DD) checks?

Sanctions and PEPs screening is a critical component of effective KYC and DD to provide financial institutions with a robust risk management framework, ensuring that they are well-informed about their customers and business partners.


What are the potential consequences for businesses that fail to comply with PEPs and sanctions screening regulations?

Businesses that fail to comply with sanctions regulations can face severe consequences, both legal, financial and reputational. Regulatory bodies impose hefty fines for non-compliance, and these fines can be substantial, depending on the severity of the violation. Additionally, businesses may be subject to legal action, or exclusion from certain markets.

The reputational damage can be equally, if not more, damaging. Non-compliance with sanctions can lead to a loss of trust among customers, partners, and investors. Financial institutions may find their credibility eroded, impacting their ability to attract and retain clients.


Are you looking to conduct PEPs and sanctions screening?

Experian can help you navigate this complex and constantly evolving process with our simple and reliable solution called CrossCore Watchlist Service. It provides real-time screening across a comprehensive global database of PEPs and sanctions lists with a simple integration into your onboarding system.

For more information about CrossCore Watchlist Service, simply fill out the form below, and we will send you the brochure with a detailed breakdown of the benefits the solution provides and how it works.