PEP Screening – Necessary to Boost Business Growth

pep screeening

Why Is PEP Screening Essential For Businesses Today?

The business world today comprises complex layers of stringent regulation on domestic, national, and international levels. They are obligated to meet industry standards and comply with ethical and legal regulations despite the size or category of their business domain. Some companies may perceive stringent regulations by the government authorities as mere burdens. However, there is a reason why competitive firms tend to prioritize spending on compliance costs. Generally, non-compliance ends up causing $4,005,116 in lost income. And noncompliance is more likely to cost businesses by more than double the cost of complying with regulations. Moreover, regulations protect investors, customers, employees, and the firm from legal penalties and lost revenue in financial crimes.

Compliance protocols such as PEP List Screening are essential for businesses to keep up with regulatory compliance and protect their market reputation. Such measures help businesses in risk management and detecting high-risk clients who can easily get away with corruption and bribery due to their wide political links.

Which Businesses Should Employ PEP Screening Measures?

Financial Service Providers:

Financial institutions are on the frontlines to comply with financial regulations issued by international organizations and government bodies to prevent financial crimes such as money laundering and terrorist financing. Following firms come under the criteria of financial service providers.

  1. Issuance firms
  2. Banks
  3. Asset management firms
  4. Cryptocurrency firms
  5. Credit unions
  6. Mortgage lenders
  7. Electronic money institutions
  8. Investment firms
  9. And so forth

The Financial Action Task Force (FATF) has required all the above-mentioned sectors to comply with the PEP Check requirements in accordance with its Recommendation 22 and 12 in order to avoid legal penalties. For the U.S financial industry, regulations such as the Bank Secrecy Act and Patriot Act are kept in place by authorities like Financial Crimes Enforcement Action FinCEN to prevent financial crimes, in particular money laundering.

Real Estate businesses: Real estate businesses are the go-to choice for money launderers around the world, as this industry operates primarily with cash and tends to have little regulation to verify the source of money. The posh real estate in London, Paris, UAE and the United States have become the cradle of money laundering. Therefore, many jurisdictions have mandated a PEP screening against their customers to prevent money laundering.

Gambling & Casinos Businesses: In the United States, casinos are categorized as regular financial institutions since they generate over $1 million in profits every single year. Therefore, all gambling businesses are obligated to comply with PEP screening protocols, no matter whether they operate in person or online. Non-compliance with AML/CFT protocols may result in massive legal penalties.

Besides the above mentioned financial services, the following service providers are now also taking up PEP screening methods to abide by AML/CFT regulation in order to avoid astronomical financial penalties by the regulatory authorities.

  1. Precious Metal Businesses like diamond industry
  2. Recruitment Firms
  3. Art Dealers
  4. Not for Profits Organizations (NPOs) and Charities.
  5. Legal firms
  6. Auction Houses
  7. Freight Forwarding Firms
  8. Shipping companies

Implications Of Non-Compliance With PEP Screening Protocols

Politically Exposed Persons (PEP) Lists are maintained by government agencies. Often private enterprises keep more comprehensive information on PEP and these databases are accessible to the public. These lists are also updated by the U.S State Department and International Organisations like the United Nations (UNO). In the last decade, the regulatory authorities such as Securities and Exchange Commissions (SEC) in the United States have slapped several banking giants with billions of jaw dropping fines.  For instance in 2015, Barclays PLC was fined a staggering $2.8 billion for failing to meet AML measures while dealing with its high risk customers.

In 2019, Union Bank of Switzerland (UBS) is fined $5.1 billion for facilitating the filthy rich with tax evasion and breach of anti money laundering measures. This massive legal penalty sent shockwaves throughout the financial world.

In similar fashion, Italian bank UniCredit was fined $1.3 billion in legal penalties for providing banking services to Iranian clients that are sanctioned by the international community and facilitating money laundering of $7 billion in the American financial system.

Businesses are mandated to monitor the financial activities of their customers and immediately file Suspicious Activity Report (SAR) if they observe any dubious ethical or criminal activity. Failing to do so may result in nasty fines by the regulatory authorities. Businesses can face fines for the actions of their customers. Therefore, they must have PEP Compliance Programs in place to have a risk based approach.

The encouraging news for the business world is, a number of automated PEP screening solutions are accessible in the FinTech market that provides automated PEP screening softwares. The onus is now on the businesses to either pay the double cost of legal penalties or pay the cost of compliance.


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