The last thing any business needs is to be implicated in transactions of questionable ethical and legal standing. In an increasingly global and virtual business world, the importance of integrating PEP and sanction checks when conducting transactions has never been higher. Doing so helps to ensure a business has no legal or political blowback for conducting business with someone whom they prefer not to associate.
PEP and Sanction Checks Explained
Conducting PEP and sanction checks on customers help companies avoid running afoul of local, national, or international laws preventing certain types of transactions by certain people. Among the importance of these laws are the desire to avoid conflicts of interest by public officials, prevent money laundering, or prevent bad or violent actors from participating in business.
The types of lists that may be important to check and cross reference before engaging in business with an individual include:
- Politically Exposed Persons (PEP) – those with a public or government function that may have conflicts of interest
- Government Sanction Lists – includes people who have been sanctioned or prevented from participating in some forms of businesses by one or more governments
- Anti-Terrorism Lists – includes those not allowed to engage in certain activities due to suspected involvement in terrorist activities
- CIA Lists – includes important world leaders and political actors around the world
- Sanction Lists – produced by governments around the world as well as international organizations like the United Nations and include illegal actors ranging form individuals to organizations, businesses, and governments. These may include individuals or entities involved in human rights violations, money laundering, drug trafficking, illegal weapons sales, and international financial crimes such as fraud or contract violations.
Implementing PEP checks and sanctions checks ensure a business does not engage with any of these bad actors. They are also a requirement of Anti-Money Laundering or AML and Customer Due Diligence or CDD regulations. All companies should be sure to run checks for PEP and other sanctions whenever onboarding new customers as well as routinely reviewing them for the presence of any clients. An automated PEP and sanction screening process via software or databases makes this process easier, faster, and automatic, assuring that a business is in compliance with all AML and CDD requirements.