In light of the recent sanctions imposed on Russian individuals and entities, financial institutions must perform thorough screenings to avoid legal, financial, and reputational risks. This includes screening for politically exposed persons (PEPs) and their relatives and close associates (RCAs) to ensure effective risk management. Prior to onboarding new clients, organizations should consider implementing a risk classification system to accurately determine the level of risk posed by PEPs. Thorough screening for sanctions, RCAs, and adverse media should be conducted using integrated technology solutions.
Politically Exposed Persons (PEPs)
PEPs are individuals who are or have been entrusted with prominent public functions, such as senior politicians, judiciary and military officials. Screening for PEPs should take place in the early stages of any onboarding activity and then on an ongoing basis across the customer base. If a PEP is a client, organizations should categorize them as higher or lower risk to ensure that enhanced due diligence is proportionate and effective. It's also important to notify those responsible for monitoring risk assessments in the organization when a business relationship with a PEP begins.
It's important to recognize that higher-risk PEPs, often those at a senior level, may still pose a risk after leaving office due to their activity and relationships built up during their time in the role. It is advisable to undertake enhanced due diligence on these individuals over a longer period.
Relatives & Close Associates (RCAs)
As part of the PEP screening process, it's crucial to flag RCAs of PEPs, including partners, spouses, parents, children, uncles, aunts, cousins, and close friends. Screening this audience is essential, as they may be vulnerable to bribery, blackmail, and corruption due to their relationship with someone in a position of authority and influence. Screening for RCAs should take place at the start of the business relationship and on an ongoing basis.
Adverse Media Screening
The use of technology to perform adverse media checks is essential for PEP and RCA monitoring. This technology flags negative news associated with an individual, keeping organizations up-to-date in real time on news of arrests, court cases, and other potential negative regulatory, financial, or reputational consequences to the organization. To be effective, the tool used for adverse media screening must scan credible global news media.
If there is negative news against an existing client, they should be ranked as high risk, and further due diligence may be required, which may result in terminating the business relationship. Adverse media screening should not only be used to monitor existing clients but also at the customer onboarding stage as part of their customer due diligence.
Integrated Sanctions Technology
The best way to source information on PEPs and RCAs is to utilize technology that provides an up-to-date sanctions list (also called a watchlist), delivers data on PEPs and RCAs, and performs adverse media screening. The technology behind the watchlist should automatically collect and synthesize sanctions data in real time from trusted sources worldwide, such as governments, regulators, and credit agencies for maximum reach and accuracy.
Electronic Identity Verification (eIDV)
Electronic identity verification (eIDV) technology works well as part of a wider and more comprehensive approach to automated know-your-customer (KYC) and anti-money laundering (AML) operations. Accessing comprehensive data on sanctions, PEPs, and RCAs and cross-checking user-provided details against reputable data streams enables organizations to confirm in real time that individuals are who they say they are.
All organizations should access appropriate technology that delivers PEPs, RCA data, and adverse media screening for sanctions best practices, not just those in financial services that are legally required to do so. This approach enables businesses to protect their bottom line and reputation, which is particularly important in these challenging economic times.
For more information on Melissa's Identity Verification solutions, schedule a demo or connect with a member of our team by calling 1-800-MELISSA. Don't forget to subscribe to our blog for everything related to data quality!