What is Sanctions Screening?

Sanctions screening is crosschecking persons, organizations, and entities against lists published by governments and international organizations containing sanctions against certain individuals or entities. Such lists typically include the names of individuals or companies involved in illegal activities such as terrorism, drug or human trafficking, and severe human rights violations.

Sanctions screening is absolutely necessary because dealing with a sanctioned identity may lead to penalties, legal issues, and loss of reputation. Therefore, regulatory authorities have put rules in place that require firms, both financial firms and designated non-financial businesses and professions (DNFBPs) to carry out sanctions screening checks before onboarding clients, carrying out transactions, or establishing business relations.

What is PEP Screening?

 

PEP screening is the process of identifying and assessing individuals with political exposure, along with their associates, by cross-referencing their information against global PEP databases and conducting risk assessments. Due to the stature held by these individuals, there is a higher chance that they could engage in bribery, corruption, or even other financial crimes.

Unlike sanctions screening, being a PEP is not a crime. PEP screening is an enhanced due diligence (EDD) process, as it is expected from business to use greater care in supervising the onboarding and financial transactions of those who are categorized as PEPs. This assists in curbing the chances of money laundering and other corruption activities.

PEPs can be classified into different categories:

 

• Domestic PEPs are individuals occupying political offices in a particular country.
• Foreign PEPs are individuals holding political or relevant offices in another country.
• International PEPs are officials working in international organizations such as the UN or the International Monetary Fund (IMF).
• Close Associates of PEPs are individuals with significant relationships to a PEP, such as business partners, advisors, or personal associates.
• Family Members of PEPs include immediate family members such as spouses, children, parents, or siblings of a PEP.

Because these high-risk individuals have influence over public funds, businesses need to understand their potential risk exposure and implement appropriate measures to monitor PEPs.

Differences Between Sanctions Screening and PEP Screening?

The focus of sanctions screening is to identify and prevent financial transactions with individuals or entities involved in illegal activities. This is a harsh legal obligation which, if neglected, can result in substantial fines or prosecution.

PEP screening, on the other hand, deals with determining people who are most likely to be a threat because of their associations, high status and political activities. Unlike sanctioned people, PEPs are not restricted from undertaking any financial activities, however, their dealings are subject to some level of oversights to mitigate misuse.

Both screening processes target increasing financial crimes, but while sanctions screening applies legal restrictions, PEP screening is done on a monitoring basis. As a result, the nature of both measures set out certainly, enhances adherence with AML compliance regulations and protects the organization from financial and reputational losses.

 

In Conclusion

Managing both sanctions and PEP screening is instrumental in the development of an efficient AML compliance system. Finch Innovate’s AI-powered AML name screening module enhances this process by providing advanced, automated screening capabilities. Businesses can choose FinchCOMPLY, FinchAML, or FinchSCAN, depending on their business requirements, as all three solutions incorporate sanctions and PEP screening to help financial and non-financial institutions strengthen their AML compliance processes, prevent financial crimes, and maintain trust in the global financial system.

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