These Types of Companies Should Perform PEP Screening on Customers

This sanctions.io article will answer these questions. And the answers may surprise some readers. Why? Because a common misconception about PEP screening is that it's solely for financial institutions like banks.

As you'll discover, companies and organizations from various industries increasingly embrace affordable PEP screening solutions. 

But before we expand on that - let's remind ourselves what a PEP is.

Who Are PEPs?

The sanctions.io blog has covered this question in-depth: You can read helpful information in PEP Screening Demystified.

But in its simplest form, the closest official definition of a PEP comes from the Financial Action Task Force (FATF), the global money laundering and terrorist financing watchdog, which state that a PEP is 'an individual who is or has been entrusted with a prominent public function.'

FATF's definition is helpful. However, what does it mean practically? It means individuals with roles in governmental organizations, political bodies, and even the armed services have access to tax-payers money. 

Although the majority of PEPs will be responsible, ethical individuals. Some PEPs decide to walk on the wrong side of the law. According to the United Nations Office on Drugs and Crime (UNODC), corruption remains a widespread issue affecting societies worldwide. 

Stealing tax-payers money from state coffers and receiving suitcases full of cash as a kickback creates a necessary action for the PEP acting illegally: Laundering the ill-gotten funds - making PEPs, as a group, high-risk money launderers. 

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All Companies and Organizations Can Benefit from PEP Screening 

Later we will reveal the types of companies and organizations that should screen for PEPs - such as banks, who may likely have a legal requirement to do so (depending on the jurisdiction).

But first, it's essential to remember that all companies and organizations can reap tangible rewards from performing PEP checks on new and current customers. After all, no responsible business should make it easy for criminals to clean dirty money through their accounts. 

Secondly, PEP screening is much more than mitigating the risk of money laundering. There is another clear use case that's relevant for all types of companies and organizations. And that's what we'll talk about next. 

PEP Checks Support Environmental, Social, and Corporate Governance (ESG) Goals

Beyond money laundering prevention, PEP screening helps businesses and organizations because it supports environmental, social, and corporate governance (ESG) goals.

For example, compliance and ethical business practices are part of the governance pillar of ESG. And PEP screening helps organizations behave with integrity because the process identifies individuals who require enhanced due diligence (EDD).

Additionally, ESG reports are increasingly crucial for investors when deciding where to place their money. Research also reveals how poor ESG disclosures can mean lost business investment opportunities. 

And the bottom line is this: Robust PEP screening processes weed out potential money launderers from your business - but it's also a critical process that many investors now require.

We will now examine in detail why the following types of companies should screen for PEPs.

Number 1: Financial Services

The most prominent use case for performing PEP screening is for financial institutions to comply with anti-money laundering (AML) and countering the financing of terrorism (CFT) regulations.

Examples of financial services legally required to perform PEP checks (depending on the jurisdiction) include:

• Banks
• Electronic money institutions
• Credit unions
• Investment firms
• Insurance companies
• Asset management companies
• Mortgage lenders
• Cryptocurrency services
• And many more
  

Most jurisdictions worldwide have PEP screening requirements for the financial industry, per FATF recommendations 12 and 22. In this article, we can't go into all of them. But an example is the US's Bank Secrecy Act and the Patriot Act, as implemented by the Financial Crimes Enforcement Network (FinCEN). 

As is the case so often within compliance, businesses should always seek professional help (either from external consultants or through employees with specialized knowledge) when navigating the intricacies of PEP screening regulations within their operational jurisdictions. 

Number 2: Casinos and Gambling Establishments

Here is a little-known fact: The US government classifies casinos (with more than $1 million in annual revenues) as financial institutions. And it means they are subject to the Bank Secrecy Act (BSA) requirements - including PEP screening clients.

You can learn more about it in this sanctions.io guide: Money Laundering in the Gaming and Gambling Industry.

But it's important to remember that gambling industry regulation worldwide differs significantly. While the classification of casinos as financial institutions and PEP screening requirements may apply in the US, other countries have their own legally-binding rules. 

All casinos and gambling businesses, whether physical or online, must ascertain their PEP screening obligations in their operational jurisdictions. Failure to do so may lead to astronomical financial penalties (which are common). 

For example, only a few weeks before the time of writing, Australia's Crown Casino agreed to pay a whopping $294 million fine after it failed to comply with AML/CFT laws.

Number 3: The Real Estate Industry

One of the most common ways criminals launder dirty money is through real estate. You can learn more about it in this sanctions.io guide. 

And the reality is this: Corruption, money laundering, and real estate walk side by side in all corners of the world. 

For example, experts frequently describe London's property market as a global money laundering hotspot. The police also revealed that most corruption cases they investigate involve purchasing UK property.

Here is another but less-known example. In a 2022 interview, a property agent in Iraq's capital, Baghdad, said real estate prices in upmarket areas are now higher than in many European capitals. Why? Because corrupt politicians and civil servants (with ill-gotten funds to launder or hide) are dramatically forcing up prices. Iraq is one of the most corrupt countries in the world.

So what is the world doing about this global problem?

Many jurisdictions worldwide require real estate companies to perform PEP checks on clients. However, the specific requirements and regulations surrounding PEP screening in the industry can vary significantly from one jurisdiction to another.

But the following is essential: Real estate companies and professionals must familiarize themselves with the laws and regulations regarding PEP screening applicable in their operational jurisdictions.

In its Risk-based Approach Guidance for the Real Estate Sector, the FATF also recommends that real estate companies and professionals should have relevant knowledge of PEP processes - and also consider applying enhanced due diligence (EDD) measures if their client is a PEP (implying that PEP screening should take place).

Further Examples of Sectors That Should PEP Check Customers

Financial services, casinos (all gambling), and real estate firms are industries recommended to perform PEP checks on customers. However, the following sectors are also all fast-embracing cost-effective PEP screening services, as provided by sanctions.io, for all the reasons already outlined in the article:

• Legal and Accounting Firms
• Charities and Non-Profit Organizations
• Recruitment Agencies
• Private Jet and Luxury Yacht Providers
• Art Dealers and Auction Houses
• Diamond and Precious Metal Traders
• Shipping and Freight Forwarding Companies
  

If you would like to explore sanctions.io's PEP screening solutions, we offer a free 7-day trial (no credit card is required). You can get to know our service even with basic technology skills - for example, by simply uploading a .csv file with your client and business partner data.

We would also be delighted to walk you through our service and answer all your queries regarding the sanctions.io API, integrations, and more. Book a free Discovery Call now. 

sanctions.io is a highly reliable and cost-effective solution for PEP checking. AI-powered and with an enterprise-grade API with 99.99% uptime are reasons customers globally trust us with their PEP screening needs.