PEP and Sanction Screening

AML is an umbrella term for the range of measures, controls, and processes businesses must have in place to achieve regulatory compliance and stop financial criminals from concealing illegally obtained funds and making them appear legitimate. AML laws require companies to take steps such as verifying the identity of their customers, keeping records of the customer's transactions, and reporting suspicious activity to authorities. One of the most crucial parts of complying with AML laws is to Know Your Customer. KYC, or "Know Your Customer", is a set of processes that allow companies to confirm the identity of the individuals they do business with, and ensures those individuals are acting legally. Effective KYC protects companies from doing business with individuals involved in illegal activity, such as money laundering, terrorist financing or corruption.

Terrorist financing is how terrorists obtain funds to finance their pernicious operations. According to The Financial Task Force (FATF), terrorist financing is the "...financing of terrorist acts, and of terrorists and terrorist organisations.”. Acts of terror can be prevented by disrupting the flow of funds to terrorists, and many countries have implemented measures for countering the financing of terrorism (CTF). These measures are often synonymous with anti-money laundering (AML) laws. Implementing adequate AML/CTF controls is vital to the regulatory compliance strategy and combat terrorist funding.

Sanctions, also referred to as restrictive measures, are punitive or restrictive actions taken by individual countries, regimes, or coalitions. Sanctions can restrict organisations, individuals and states from conducting trade, making financial transactions, and more. Sanctions can be specific or general in their implementation and enforcement. Organisations must comply with regulator expectations and adopt a risk-based approach to sanctions compliance with access to continuously updated sanctions lists, i.e. databases listing individuals, legal entities, and countries with whom it is illegal to do business. Doing so during client onboarding is not enough; organisations need to stay alert to compliance threats with continuous sanctions risk monitoring.

Adverse media, a.k.a. negative news, refers to any disadvantageous information found about individuals and entities across traditional news outlets and unstructured sources. There are numerous risks associated with conducting business with persons or companies with an adverse media profile. Adverse media screening and monitoring is the process in which a customer, or prospective customer, is screened against negative news and data sources. Adverse media screening and monitoring allow firms to detect a potential problem before they risk being associated with it and having their reputation tainted. The spectrum of negative news is not limited to allegations or convictions of financial crimes; a client’s bad reputation is enough to pose risks and calls for further investigations and due diligence on a customer.

A PEP (Politically Exposed Person) is a person who possesses a certain form of political and institutional power due to a high-ranking job in a government or some other type of political position. Because of their power, PEPs are considered high risk in relation to money laundering, blackmail, bribery and other types of corruption. Spouses, family and close business partners are also considered PEP, as their relationship can be exploited - voluntary or involuntary. The Anti-Money Laundering Directive requires all businesses to be extra careful when they deal with clients or customers who are PEPs as they constitutes an elevated risk.