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The Role of Sanctions and PEP Screening in the KYC Process

High-risk businesses like banks, law firms, insurance companies, and other regulated entities must perform screenings of both new and current customers as part of the risk assessment process. These checks help make sure the business’s capital, reputation, revenue, and future are protected from illegal activities like money laundering or the substantial fines that follow non-compliance.

However, even though they help keep your business safe, performing PEP screening and sanctions screening checks can be complicated and expensive, and these processes often require a large amount of time and labor to stay up to date. Fortunately, reputable global risk compliance companies like Truth Technologies have created software to eliminate the challenges of maintaining due diligence.

Our Sentinel™ software solution protects your organization’s reputational and compliance risk and helps your business meet national and international regulations, including PEP screening and sanctions screening, as part of the KYC process.

What Is the KYC Process?

Know Your Customer (KYC) is the mandatory process that financial institutions and other regulated businesses must perform to verify a customer’s identity and determine the financial risks of doing business with them.

Essentially, the KYC process requires businesses to know who a customer is in order to see if they have been accused or suspected of criminal activity or if they are at a higher risk of breaking financial law. High risk customers—a term that encompasses individuals, organizations, or businesses—include those in danger of bribery, those associated with known criminals, those forbidden by sanctions, and those who have committed financial crimes.

In many countries, KYC screening has become a critical part of anti-money laundering (AML) legislation.

What Is Sanctions Screening?

Sanctions are actions taken by governments to forbid or limit interactions with a country, organization, business, or individual. Their goal is to prevent and detect illegal financial actions or threats to national security.

A sanctions screening is performed to discover if a customer is included on any government watchlists or sanctions lists complied by law enforcement or regulatory agencies—from country-wide lists those produced by the United Nations. Customers appearing on these lists are prohibited from certain activities, so you may not be able to onboard them as new customers or keep them as existing customers. The rules vary by country.

What Is PEP Screening?

A politically exposed person (PEP) is someone with significant influence who performs a prominent public function. PEPs may include military officers, heads of state, high-ranking political party officials, senior executives of federal organizations, and senior politicians. These individuals—as well as their family members and close business associates—are considered to be at a higher risk of bribery or corruption.

Working with PEPs is not illegal; however, since they pose a potential risk to financial institutions, businesses need to pay special attention to their financial transactions.

The Importance of Sanctions and PEP Screening

To stay in compliance with local and international standards of KYC and due diligence, regulated entities are required to perform detailed PEP and sanctions screenings when onboarding new clients and as part of an ongoing review of current customers.

Financial institutions and other regulated businesses that neglect to follow the KYC process and fail to meet compliance requirements are at risk of significant fines as well as serious penalties. Failure to identify high risk customers, monitor financial transactions by PEPs, or prevent relationships with customers on sanctions lists exposes a business to reputational and financial damage.

KYC regulations can be burdensome, especially as your client list grows, and yet each regulated business is responsible for performing their own risk assessment. Fortunately, there are technological solutions available to simplify the screening process.

PEP and Sanctions Screening Software Makes the KYC Process Easier

By using a trusted, automated PEP and sanctions screening system, you can easily determine which customers are high risk and stay in compliance with national and international laws. Instead of devoting time and labor to manually checking customer names against endless lists, high quality software can verify the identity of your customers, flag PEPs, and notify you of clients on sanctions lists.

When choosing a screening solution for your business, make sure it can access all relevant PEP and sanctions lists as well as alert you to any changes to a customer’s risk level. Additionally, look for software that reduces false positives, which can slow business processes and hurt your reputation.

Protect Your Business with Our Innovative Sanctions and PEP Screening Technology

At Truth Technologies, we pride ourselves on being a trusted provider of global risk compliance solutions. Our Sentinel™ software application provides additional protection for your business by accurately and efficiently identifying high risk customers and helps you meet both national and global KYC/AML standards.

To learn more about our sanctions and PEP screening tools, request a demo or contact us today. We’ll show you what makes our software the best choice for due diligence and KYC processes.

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