How would businesses react to the news that they can onboard a group of people involved in more than 1 trillion dollar bribes every year?
Yeah, we are talking about the politically exposed person. According to World Bank reports the common man and business pay nearly 1 trillion dollars yearly to PEPs and other people in high-profile positions.
Doesn’t it raise the question of whether there must be some measures in place to detect people with such criminal backgrounds? It does.
PEP screening helps businesses know their customers before onboarding or dealing with them.
Going back to the question on which we started our blog, yeah, PEP screening is very helpful in detecting people who are more prone to financial crimes such as money laundering and, in some cases, terrorist financing.
The following content will highlight why the peps are high-risk individuals and how pep screening could be helpful to businesses while following the AML compliance efforts.
What makes PEPs more likely to be classified as high-risk?
There are many reasons that make the politically exposed persons more prone to money laundering and other related financial crimes. The first on the list is the influential power that comes with their position in public office.
Is every PEP considered high-risk? All PEPs do not pose the same level of risk.
However, due to their access to public funds that could be used for their personal use, such vulnerability puts every PEP on the list of individuals who are more prone to financial crimes. Bribery and corruption are another factor.
Why is PEP Screening essential for businesses?
Suppose that your company is going to build a partnership with a person who has the power and authority in the public office and government offices. Won’t you think for a moment that the person may have acquired the money through corruption, fraud, or embezzlement?
Your compliance team will definitely and immediately try to check the previous history of a person and his criminal record.
This is what makes the screening of PEPs essential for business.
1. Reduce the risk level
Identifying the risk level that every client could pose is essential for businesses.
And the PEPs are highlights as the most high risks person because of their ability to influence the people through their power and engage in an activity that are not legal.
Therefore, businesses must opt for early identification to take precautionary measures to mitigate these risks.
Once the organization’s identity is revealed that one of the PEPs is involved in financial crime, businesses can perform enhanced due diligence (EDD) to assess the level of risk and determine the appropriate level of scrutiny and monitoring.
2. Comply with Regulatory Compliance requirements
Businesses of all types are required to create internal compliance programs that adhere to the regulatory body’s requirements. Financial institutions are on the top of the list.
The reasons are many, as we are here discussing PEP screening process.
Another benefit of conducting PEP screening is that it ensures that the participants are not involved in facilitating money laundering or corruption.
3. Avoid Reputational Damage
Building trust among customers and in the market is more important than anything else for any organization.
Implementing PEP screening demonstrates that the business is committed to fighting illegal financial activities.
The more trust an organization builds among its clients, the more it grows and earns.
Involvement with high-risk individuals can also lead to negative publicity and damage to a business’s reputation.
Therefore, PEP screening is a must to prevent such scenarios by identifying and managing risks proactively.
4. Financial Security
Having a secure financial system is everything for a company. However, when an organization Engages in criminal activity,, it can result in significant financial losses due to the involvement of one person in fraud, embezzlement, or regulatory fines.
However, properly implementing PEP screening in business operations can help businesses avoid these potential losses by identifying and avoiding risky relationships.
5. Make business Operations More Efficient
Don’t you want your business operation to be more efficient and hassle-free? One great way is to invest in advanced AI and ML-incarnated compliance programs in place, including the PEP screening. As the
Modern PEP screening solutions often include advanced technology that automates the screening process and reduces the compliance team’s manual burden.
If you find that the high-risk individual is making any transactions while screening pep, the business can take timely actions, such as declining high-risk clients or implementing stricter monitoring procedures. This proactive approach saves time and resources in the long run.
Protect your business with AML Watcher’s PEP Screening solution.
For businesses to not let themselves involved in any criminal activities, they make every effort. However, due to loopholes and ambiguity, criminals find ways to breach the law and commit money laundering. Among such characters, politically exposed persons are considered high-risk individuals.
To avoid onboarding such clients, businesses need to implement a robust KYC program and screen against the PEPs so that they are not involved in any activity related to money laundering and other activities.
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