PEP Screening –
A Best Practice Guide
There are around 2.3 million Politically Exposed Persons and 1.3 million known aliases across the globe that could pose a money laundering risk to your business. Yet many regulated firms don’t utilise PEP lists and still attempt PEP screening manually. This best practice guide provides useful advice to help you overcome the challenges of screening PEPs and using PEP lists.
What is a PEP?
A Politically Exposed Person is a person in an influential and prominent position, operating within a domestic or foreign capacity. PEPs have access to resources and power that can influence government, policy and people.
What is a PEP List?
Put simply, A PEP list is a database of Politically Exposed Persons and includes the names of individuals who hold the various prominent public positions defined in AML regulation.
Why do companies need to screen PEPs to comply with anti-money laundering regulations?
The more senior the role a person holds in government, the more exposure that person has to the people and resources that can influence or corrupt the laws that govern financial actions. Those that are politically exposed are more likely to have the opportunity to manipulate and misuse the financial system for illicit gain and personal advantage. They are seen to represent a greater risk of corrupt practices such as bribery and fraud, which are often predicate crimes for money laundering.
In the UK, obliged entities are required by AML regulation to perform enhanced due diligence for all politically exposed persons, domestic and overseas, both in office and having left office, including their family members and close associates.
Screening PEPs to manage money laundering risks has never been more complex
Lost in translation
Language and dialect can pose significant challenges to screening, especially where non-latin characters are used. Definitions of who qualifies as a politically exposed person, family member or close associate can vary widely between countries, too, as can local data protection and other laws.
Public PEP list quality can vary
There are no agreed standards of governance around how often or accurately PEP lists should be checked. Where national PEP lists exist, they can be unreliable, and many countries around the world don’t produce a PEP list at all, making thorough global PEP investigations extremely tricky.
PEP lists are always changing
The 24-hour news cycle means PEP lists are in a constant state of flux as people gain and lose power and influence, literally overnight. It takes a team of 450 global researchers managing 88,000+ PEP records each month to maintain the WorldCompliance™ PEP database.
Once a PEP, always a PEP
Many PEPs retain significant influence long after leaving office. Regulation requires they be monitored for at least 12 months afterwards, but most firms do so for much longer. Even deceased PEPs require caution, if they pass wealth on to others.
Which countries produce PEP lists?
Information and practices vary significantly across the globe making manual screening extremely tricky.
Many countries publish lists of PEP positions, but don’t update them frequently enough to be useful, while others don't publish official lists at all. Free to use, open-source lists are available, but also vary in completeness and reliability.
In addition, the 5th Money Laundering Directive (5MLD) requires countries to produce a list of "prominent public functions" – i.e. job titles – classed as PEPs according to that country's national laws and regulations. However, the post holder’s name is not included, leaving it to those carrying out the screening to investigate.
PEP information is only useful if it’s current. With geopolitics changing minute by minute, firms that aren’t using the most up-to- date data sources are at risk of leaving gaping holes in their screening processes and exposing their business to significant unknown risks, as well as negatively impacting customer experience.
Incomplete PEP data means more false positives
Using ineffective data sources to screen for politically exposed persons not only exposes you to greater money laundering risk, but it can also significantly increase your workload.
Publicly available and open-source PEP lists can contain large quantities of inaccuracies and missing data, resulting in significant quantities of false positives when screening new customers. These require time and resource-consuming remediation, severely impacting customer experience and risking potential loss of business from valued customers.
PEPs whose names and aliases use non-Latin-based character sets, such as Arabic, Cyrillic, Turkish, Hindi, Mandarin, Chinese or Japanese can be particularly challenging to screen, especially if those carrying out the screening aren’t working in their native language. Using unreliable data further increases the chances of mistakes and false positives.
Manual PEP screening and alert remediation is time-consuming and costly
According to our own research: Cutting the costs of AML Compliance, over half (53%) of UK AML compliance professionals’ time and budgets are spent on customer due diligence, with a further 14% spent on enhanced due diligence: further investigation, information and evidence gathering. That amounts to almost £20bn a year in operational costs for the Financial Services industry alone.
Most PEPs are valuable customers, so treat them well!
Being a PEP does not automatically infer a link to criminal or corrupt activities. The vast majority of PEPs are good, honest people and low risk customers. Organisations should consider PEPs as desirable prospective customers and should be treated the same as any other business opportunity.
So why subject them to lengthy approval processes at onboarding, often resulting in frustration and lost business? Within AML programmes, PEPs should be treated on a case-by-case basis following a risk-based assessment in accordance with a number of factors, including the financial institution’s relationship, geography, and business line.
Powerful screening tools, such as LexisNexis® Bridger Insight® XG can leverage the power of LexisNexis® WorldCompliance™ Data and enable users to screen an extensive global PEP database within seconds.
Best Practice for Effective PEP Screening
Use the most reliable, up-to-date source information
Ensuring it includes all current PEP definitions and secondary identifiers to minimise false positives.
Keep up-to-date with the latest guidance
A PEP list must conform to the latest FATF and either FCA (UK) or CBI (Ireland) guidance.
Employ secondary data
Identifiers such as: date of birth, gender, nationality, country of residence, a photo, if available, and additional media information will greatly enhance screening effectiveness and reduce false positives.
Screen family and associates
Use PEP databases that include clearly identifiable close family members and associates.
Look at wider networks
Investigate associates and other linked entities and understand the wider network of the individual being onboarded.
Leverage expert advice
Some commercial PEP database providers allow direct contact with researchers to verify information.
Speak their language
Screening should ideally be conducted in the PEP’s native language, particularly when it uses a non-Latin based character set, such as Arabic, Hindi, Chinese or Japanese.
Think locally
Use a proprietary country risk index system to assess whether the individual is native, or exposed to higher risk jurisdictions.
Scour the media
Adverse media checks can enrich your knowledge of a politically exposed person and should also be carried out in native languages and character sets for the deepest insights.
Pay closer attention to State Owned Enterprises (SOEs)
State Owned Enterprises are more likely to include PEPs in their ownership and management structures and their access to government funding means they should be treated as higher money laundering risk.
How to choose the best PEP screening tool
Ensure your screening tools are of the highest quality and reliability by selecting a PEP database that:
Offers extensive PEP coverage conforming to FATF definitions
Is rich in secondary identifiers, including dates of birth and photos, to help verify the identity of PEPs quickly and avoid false positives
Is reviewed and refreshed, on a daily basis, by a network of global researchers capable of working in native languages and with access to extensive sources of global information
Is governed by the highest quality control standards, ensuring the customer only sees validated information linked to source articles, with duplications eliminated
Integrate seamlessly with your business’s own delivery methods and compliance processes, such as…
Web-based Interfaces
Due Diligence Screening:
LexisNexis® Bridger Insight® XG
Enhanced Due Diligence:
LexisNexis Risk Management Solutions® – Global
Identity Verification:
LexisNexis® IDU®
Flat-file Data
Data files can be provided offline in XML and Text Delimited formate to integrate with your screening system
API
A search API is offered via our screening platform, LexisNexis® Bridger Insight® XG for seamless integration