This is, in no small amount, due to the fact that they hold positions of influence and have access to public funds, meaning their risk of involvement in corruption, bribery, or misuse of funds is increased.

Having the ability to identify PEPs is, however, just one of the factors to bear in mind, as a large part of the risk associated with them is related to their broader network - in particular, their relatives and close associates (RCAs).

For those dealing with compliance, they will need to have a thorough understanding of these sorts of relationships and the risks that they can bring before they will be fully prepared to carry out effective PEP screening processes. 

What is a politically exposed person?

A PEP is someone who is in or who has been in a position that holds some public function of prominence. This can include members of parliament, senior government officials, judges, military leaders, or executives of state-owned enterprises.

Being able to identify a politically exposed person is important because those in these positions of power often have more opportunities to abuse their power for money or their own gain.

Of course, being a PEP doesn’t necessarily mean you will do this, but it does require further checks to be carried out due to the increased potential.

The hidden risk around PEPs

The reason why the extended network of PEPs is one of the most complex aspects of the compliance checks is that these relationships can be an avenue for transferring illicit funds.

Trusted intermediaries, such as relatives and close associates (including family members, business partners, or those with close, personal ties to a PEP), may be enlisted to avoid scrutiny on the PEP themselves.

For example, a politically exposed person who wishes to conceal assets may choose to register property, businesses, or bank accounts in the name of a relative or associate. Without the necessary comprehensive screening processes in place, these connections can be difficult for organisations to identify.

This is why many regulatory frameworks emphasise the importance of screening not only PEPs themselves, but also conducting RCA screening for those individuals who are linked to them.

Regulatory expectations for PEP screening

According to the UK’s Money Laundering Regulations, any businesses operating in regulated sectors must apply enhanced due diligence when dealing with PEPs.

This process typically includes:

• Finding out if a customer is a PEP or if they could be connected to one

• Developing a clear understanding of the person in question’s political exposure

• Conducting a full assessment of where their wealth and the funds have come from
• Carrying out ongoing checks throughout the business relationship
  
  

Regulators now believe that all organisations should be carrying out risk-based checks in order for them to fully understand if their customer is likely to present a risk at any time.

The challenges of effective PEP identification

Despite the clear expectations that have been laid out by regulators, being able to identify a PEP is not always easy.

This is due to a number of reasons, including the fact that political roles change frequently, and individuals may hold a number of positions in multiple jurisdictions over a period of time. On top of this, global naming conventions and language differences can add to the already complicated screening processes.

Other potential issues could be with manual checks being performed against limited databases, as these may miss individuals who are using alternative spellings, aliases, or translated versions of their names.

The waters can be muddied further when you start looking at identifying relatives and connections, especially with large corporate structures or international businesses.
If compliance teams don’t have access to comprehensive global data sources, they may struggle to detect these connections.

Why ongoing monitoring is essential

Continuous screening is essential, as a PEP’s political exposure may change over time, and a person who wasn’t considered a PEP initially may become one.

Similarly, an existing PEP may step down from office but continue to present an elevated risk due to their past influence, meaning continued monitoring may still be necessary.

This is why regulators expect organisations to conduct ongoing monitoring, rather than one-off checks performed during onboarding.

By conducting ongoing screening checks, businesses will boost their own security by making sure they’ll receive a notification if one of their customers becomes a PEP or if any other new information emerges about them.

Strengthening PEP compliance through technology

As a result of the added security benefits and due to the difficulty of identifying a politically exposed person, there is a growing number of organisations choosing to opt for automated screening solutions in order to strengthen their compliance processes.

These advanced screening platforms offer businesses the ability to check and verify customers using global databases of comprehensive lists of PEPs, sanctions lists, and any other information they may need to be aware of when identifying financial risks.

These systems are able to identify potential matches, even where names may contain spelling variations or aliases. Automation also offers businesses the added benefit of alerting them if a customer’s information changes within their risk profile.

Managing PEP risk effectively

PEP screening is crucial when dealing with AML risk management, which helps increase understanding of the broader networks surrounding PEPs and implements robust screening processes. This enables organisations to better detect potential corruption risks and meet their regulatory obligations.

With the evolution of financial crimes growing faster than ever before, businesses need something they can rely on when dealing with PEP-related risks effectively, and automated screening options are the answer.

Here at SmartSearch, our advanced PEP and RCA screening solutions help businesses identify politically exposed persons, their relatives, and close associates with greater accuracy and speed. By using comprehensive global data, ongoing monitoring, and intelligent matching for aliases and spelling variations, we help compliance teams uncover hidden risk and strengthen their AML processes. If you’re looking to improve your screening capabilities and stay ahead of evolving regulatory expectations, request a free demo today or contact our team for more information.