A guide to sanction and PEP screening in customer onboarding process

A guide to sanction and PEP screening in customer onboarding process

Sanctions are basically the penalties imposed on institutions or organizations that fail to comply with laws and regulations. Government or global organizations usually apply a sanction decision to other individuals or states. A sanction check is taken in order to prevent transactions with persons prohibited from certain activities and transactions.

There could be various reasons behind sanctions. However, the primary reasons behind sanctions could be economic or political disputes. Economic and political conflicts between two or more countries lead to sanctions against each other.

In this article, we will discuss the importance of sanctions and PEP screening during the customer onboarding process.

What are the various types of sanctions?

There are undoubtedly many types of sanctions. The sanctions are based on different reasons. The reasons and various kinds of sanctions are significant for business enterprises.

There are undoubtedly many types of sanctions. The sanctions are based on different reasons. The reasons and various kinds of sanctions are significant for business enterprises.

1- Economic Sanctions

Economic sanctions are basically a foreign policy instrument between war and diplomacy. There are three main objectives of economic sanctions.

2- Military Sanctions

Some countries do not produce their own military equipment. Hence, the most common type of military sanctions is actually the prohibition of the sale of military equipment. With the help of this advantage, stronger states warn the weak states.

3- Diplomatic Sanctions

Diplomatic sanctions are the political measures taken in order to express dissatisfaction between two or more governments. A few of the political sanctions are the cancellation of senior government visits and the withdrawal of diplomatic persons from the target country.

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Sanctions on Individuals

Sanctions on individuals are nothing but the sanctions imposed on economic persons, political leaders, or any illegal identities. Organizations sanction terrorists or governments, money launderers, drug traffickers are the people who are more likely to perform any sort of illicit activities, resulting in blockage of bank accounts.

Many local and global regulators effectively control financial institutions. The sole purpose of these sanction checks is to combat financial crimes. Regulators need these financial institutions to know their customers. Therefore, regulators regularly publish new customer guidelines.

Sanction and PEP screening in customer onboarding process

For financial institutions (FIs), and Designated Non-Financial Businesses
and Professions, the customer onboarding process is quite tedious and challenging. As per the know your customer (KYC) requirements, enterprises have to make some checks in the process of onboarding the customers.

The purpose behind PEP screening is to identify the ability of the customers to pose any threat or risks. The accuracy of the information of the customer is verified at the first stage. Once the customer identification information is confirmed, the level of risk of that particular customer is also
identified.

Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD) procedures enable the FIs and DNFBPS to identify the overall risk level involved.

During the course of this process, the customer is scanned against the list
maintained by the UAE local Government and the UNSC list. It is also checked if the customer is a politically exposed person (PEP).

If the customer and his account come out clean, then the account of that
particular customer or client will be opened, and business transactions can
be made. However, the business enterprises will still have to carry out sanctions and PEP screening at regular intervals.

Why is the sanction check and PEP check required for business companies?

Bribery, financing of terrorists, money laundering, and corruption are financial crimes that are considered highly hazardous all over the world. The majority of these financial crimes occur because of the loopholes in the law and economic systems.

Regulators try to prevent all of these financial crimes by thoroughly regulating the companies in the financial sector. Many anti-money
laundering regulations have been published to serve this purpose individually.

In order to comply with these anti-money laundering regulations, financial institutions and DNFBPs should get involved in some sort of control process. Therefore, a sanction search and PEP screening are essential processes for financial institutions and DNFBPs to ensure AML compliance.

Sanction and PEP screening in the process of transaction screening

PEP Screening

Quite a lot of transactions take place throughout the day in your financial systems. Therefore, as per the anti-money laundering regulations, financial institutions should control the financial operations of their clients. If the financial transactions are not handled, severe financial crimes like money laundering and terrorist financing come into play.

However, manually controlling all your financial transactions can be a cumbersome and time-consuming process. Hence, you can use automated
tools to carry out sanctions and PEP screening.

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Customized and cost-effective AML compliance services to support your business always

Politically exposed person screening in the process of background check

The most essential thing for companies or business enterprises is their reputation. If any business enterprise loses its reputation, it directly loses its customers or clients.

Enterprises make internal controls regularly in order to avoid all of these risks. Pre-employment background checks, employment background checks, and company background checks are taken by the companies in order to protect the reputation of the company.

Employment screening is performed on the employees in order to check for the possibility of any sort of risk for the company.

How do business enterprises comply with anti-money laundering regulations?

Financial institutions (FIs) and DNFBPs have to apply sanction checks on their clients in order to comply with anti-money laundering regulations.

Financial institutions need sanction screening in order to protect the reputation of the company and not to violate any sanctions-related decisions. With the ever-evolving technology, manual sanction checks and PEP screening have
lost all the points and have become merely a way of wasting time.

There are pretty many sanctions listed across the world, and enterprises can practically and logically not check them all manually.

Hence, the need and importance of anti-money laundering screening software come into the picture. This type of software automates the
complete compliance process of the enterprises.

In addition to that, financial institutions and DNFBPs can quickly check their clients with the help of automated compliance software. This type of software scans the sanctioned lists and instantly intimates any kind of suspicious activity.

AML compliance services

For FIs and DNFBPS it is utmost important to apply sanction and PEP screening mechanism. AML UAE with its team of professionals provides expert advisory services in AML compliance. Get in touch with us to simplify your anti-money laundering compliance.

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FAQs - A Guide to sanction and PEP screening

Here are a few frequently asked questions About Sanction and PEP Screening

AML PEP check means screening individuals against an already existing register of Politically Exposed Persons (PEPs) with their names, associates, and close family members.  

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About the Author

Pathik Shah

CISA, FCA, CS, DISA (ICAI), FAFP (ICAI)

Pathik is a multi-disciplinary professional with more than 22 years of experience in compliance, risk management, accounting, system audits, IT consultancy, and digital marketing. He has extensive knowledge of Anti-Money Laundering rules and regulations, and he helps companies comply with legal requirements. Pathik also helps companies generate value from their IT investments.