In the current age, there has been an increasing focus on individuals with high net worth as they are entrusted with prominent public positions – commonly known as Politically Exposed Persons (PEP).
According to Transparency International, over 10% of people pay bribes to officials thus contributing to elevating corruption and money laundering to a global dilemma. As a result, increasing focus has been laid on criminalizing corruption and bribery at both regional and international levels.
To put for a reference, Australia has implemented legal penalties for breaking legal boundaries. For an individual, the maximum imprisonment is up to 10 years with a fine of $1.1 million. For a business entity, the maximum fine is up to $11 million.
Global anti-money laundering standards require financial institutions to have risk mitigation measures in place to identify PEP on an ongoing AML and their associated status in seconds. While onboarding PEP itself is not a risk, it does confer the importance of regularly checking the database and implementing due diligence to align well with AML/CFT regulations.
This blog will talk about two different case studies of PEP screening while shedding light on challenges associated with AML Screening and counter strategies to overcome them. Keep reading ahead to know more about it.
PEP Screening in Latin America – What went wrong?
As mandated in the Journal of Money Laundering Control, Latin America explored difficulties faced by financial institutions in the jurisdiction to offer a comprehensive analysis of risk mitigation strategies in place for PEP screening solutions and identification of risky profiles. Significant challenges emerged as core contributors in enabling corruption, including:
Lack Of Identification Policy – all across Latin America enables certain PEPs to slip through gaps. This lack of a standardized approach complicates the PEP compliance program, where PEPs are marked as risky in one country while safe in another.
Broad Categories Of PEP – As mandated by FATF recommendation 12, financial institutions must consider a wide range of PEPs including national, foreign, heads of international organizations, relatives, and close associates, which raises a benchmark for FI’s to screen against a consolidated global database which is not easily accessible.
State-Specific Harmonized Policy – According to FATF compliance regulations, countries must maintain a consistent screening regimen across all states. However, leaving gaps in screening standardization makes few regions more favorable for corruption prone to corruption risks than others.
Outdated Existing Systems – pose an additional challenge in the precise detection of politically exposed persons. With crimes getting harder to detect, the lack of technological advancements makes it challenging to detect subliminal corrupt practices.
USAA Federal Savings Bank – $140 Million Penalty
FinCEN and OCC detected significant inefficiencies in failing to comply with AML regulations. The FSB was fined due to its inability to maintain sufficient internal controls, prompt detection, and reporting of high-risk alerts, depicting poor third-party risk mitigation. Challenges leading to dire consequences are:
Huge Amount of False Positives – Lack of flexible and customizable solutions generated many false alerts overpowering alerts which could be a potential threat.
Inefficient Training – The Bank’s over-reliance on human resources with poor training accelerated compliance issues.
Compliance Process – The complicated nature of the compliance process was beyond the system’s sensitivity, resulting in poor outcomes depicting systematic failure to comply with advanced prompts.
4 Hidden Strategies to Master PEP Screening – All you need to know
The increasing complexity of regulatory requirements calls for ways to retrieve, analyze, and interpret information for up-to-minute regulatory compliance. Financial institutions are faced with complex decision-making and risk management strategies to overcome PEP-related risks. While manual background checks are resource-intensive and time-consuming, technological solutions are undeniable. Here’s a sneak peek at how they can help modify the existing system:
Customizable Solutions – False alerts as raised by USAA can be managed with a flexible screening solution, aligned with industry-specific risk thresholds, enabling only relevant alerts to rise on your system.
Consolidated AML Database – Combat fragmented information sources by integrating a consolidated database, which helps improve the unified identification of PEPs in line with global AML regulations.
Broader Coverage of PEP – AML Wathcer stands out as an industry-leading AML system covering the regional, domestic, national, and international levels of PEP, thus improving PEP identification irrespective of geographical location.
Biometric Screening – By adding an additional layer of security, this feature allows precise matching, minimizing the hassle of navigating through hundreds of search results.
Final Conclusion
Money laundering and corruption are closely bound problems associated with PEP screening. Efficient, accurate, and advanced PEP screening software dismisses the risk associated with your business to launder corrupt practices, thus enhancing security and compliance.
