Money laundering is a global phenomenon that influences economic structure all across the globe. Both developing and developed countries are exposed to damages posed by PEP and associated corruption. International organizations such as FATF (Financial Action Task Force), UN (United Nations), IMF (International Monetary Fund), and EGFIU (Egmont Group of Financial Intelligence Units) converge on deliberate measures to combat corruption risk due to the lack of PEP screening associated risk.
Who are Politically Exposed Persons?
Before we converge onto one commonly discussed definition of Politically Exposed Persons, it is important to understand that there is no universally agreed-upon definition of PEP. However, there has been increasing concern about money laundering associated with high-net-worth individuals.
The individuals who had or have been entrusted with prominent public positions are considered as PEP. Now, it’s important to note that not every PEP is a risk. However, their power and influence give them the liberty to pose a threat to your business. As depicted in a recent case involving former commissions in the US Virgin Islands from the Department of Resource Management as they were convicted of $1.4 million in the case of bribery.
These high-risk PEPs may include, heads of state, heads of government, Ministers, and, Members of Parliament. The PEPs, their families, and close associates must undergo scrutiny and due diligence by financial institutions.
This blog will serve as a guideline for best practices and technological innovations in PEP list Screening. Read ahead to learn everything new about PEP screening solution in 2024.
Best Practices in PEP Screening 2024
PEP Screening software entails peculiar challenges while entering into business relationships with the PEP himself or their close associates. Typical practice and due diligence measures prove to be outdated as compared to the advanced nature of crimes. Mitigate money laundering risks associated with financial transactions, with best practices as follows:
- Quick Identification of Risks
The common industry challenge is to detect risks before they hamper the operational efficiency and reputational credibility of the organization. The ideal way to combat this challenge is to integrate third-party data providers, covering a wide range of jurisdictions and facilitating close and quick scrutiny of risks. According to a report, a European banking system improved its PEP Screening by 30% after using AI-integrated screening power.
- Closely Analyze Risks
Another industry challenge is the inability to assess the threshold of risk a PEP may pose to the business. The incomplete data source, combined with a structured approach misses out on important information such as country of origin, and momentum of influence.
By developing a risk tier model of PEP Screening, industries can implement enhanced due diligence aligned with the level of risk associated with them thus reducing risk exposure by many leaps.
- Conduct Ongoing Monitoring
The consistently evolving nature of PEPs on an ongoing AML, adds to the challenge of precise screening. Lack of consistent tracking and missed alerts create a hassle for MLROs to detect high-risk changes in PEP status.
Continuous monitoring enables a consistent watchful eye on any change in PEP level or risk threshold thus, the system never fails to flag an alert.
- Compliance with Regulations
PEP compliance program is not just a subjective concern. Global compliance standards set by authorities like FATF must be integrated into the workflow to never miss out on any update regarding who to screen and when to screen. Conducting periodic compliance audits may help catch up with new legislation.
Technological advancements in PEP Screening
Besides best screening practices, technological advancements play a crucial role in enhancing the efficiency and effectiveness of the PEP screening process. Here is how technology can help:
- Precision Screening
Driven by biometric screening, precision screening helps detect the most precise matches reducing the recurrency of false positives. Using secondary matching capabilities, such as date of birth, unique identifier, and personally identifiable information, AML screening helps detect the right matches with just one tap.
- Language Diversity
PEPs are not restricted to one region alone. Marked as a high-risk alert in one country, you may not want your business to mark that person as safe. Thus, screening PEP names across multiple countries and languages can facilitate the most accurate status and background checks of politically exposed individuals.
- Flexible Algorithms
The more adaptable screening, the higher would be the chances of AML screening getting aligned with the business needs. Using adaptable risk scoring, fuzzy logic matching and custom add list features, businesses can avoid needle alerts, and re-screening while not missing out on significant alerts.
Conclusion
These innovations PEP screening method highlight dynamic changes like PEP-related crimes, thus highlighting the urgency to adapt to changing dynamics to ensure safe business operations.