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Pep and aml

Sanctions, Watchlists, PEPs & Adverse Media

PEP and AML scanning consists in checking if the identity of users performing a Digital Onboarding process is included in a database of Sanctions, Watchlists, PEPs and Adverse Media. It will do an identity verification of the person who is doing the Veridas validation process by using the data obtained from the ID document. The connection created between Veridas Digital Onboarding and Comply Advantage's AML services provides real-time results.

Global Sanctions & Watchlists

Sanctions are imposed by governments or by international organizations such as the United Nations, and may target entire countries, governments, businesses, or individuals. After a government designates a sanctions target, that target is added to an official global watchlist or sanctions list. When firms within that government’s jurisdiction deal with foreign customers or transactions that involve foreign parties, they should – where appropriate – screen their customers’ names against the relevant watchlists in order to ensure that they do not violate the sanctions regulations. Targets that are included on watchlists may be designated as a result of the actions that they or that their governments have taken, including:

  • Terrorism and terrorist financing
  • Human rights violations
  • Treaty violations
  • Arms trafficking
  • Drugs trafficking
  • Cyber-crime

Since sanctions are backed by financial and criminal penalties, firms should understand their compliance obligations, and how to check global watchlists accurately and effectively. Sanctions watchlists are generally publicly available and accessible online in order to allow firms to consult them freely. Watchlists are often made up of thousands of names, many of which are similar in spelling and pronunciation: with that in mind, watchlist searches may present a significant administrative burden and firms may need to rely on automated screening software in order to perform their checks effectively.

Politically Exposed Persons (PEP)

A politically exposed person is an individual with a high profile political role, or someone who has been entrusted with a prominent public function. These individuals present a higher risk of involvement in money laundering and/or terrorist financing because of the position they hold. The Financial Action Task Force (FATF) subsequently codified the term in its AML guidance, setting out the following 3 classifications of PEP:

  • Foreign PEP: Individuals entrusted with prominent public functions by a foreign country. This category of PEP may include ‘heads of state or of government, senior politicians, senior government, judicial or military officials, senior executives of state owned corporations, important political party officials’.
  • Domestic PEP: Individuals entrusted with prominent domestic public functions. This category includes ‘heads of state or of government, senior politicians, senior government, judicial or military officials, senior executives of state owned corporations, important political party officials’.
  • International PEP: The FATF sets out a third category of ‘International PEP’ – known as ‘persons who are or have been entrusted with a prominent function by an international organisation’. This category of PEP covers ‘members of senior management, i.e. directors, deputy directors and members of the board or equivalent functions’.

However, most countries base their politically exposed person definitions on FATF guidance which broadly covers the following roles and positions as PEPs:

  • Government Officials
  • Political Party Officials
  • Senior Executives
  • Relatives and Close Associates

Adverse Media

Adverse media or negative news is defined as any kind of unfavorable information found across a wide variety of news sources – both ‘traditional’ news outlets and those from unstructured sources. The risks associated with conducting business with persons or companies having an adverse media profile are many and varied.

One of the most common types of adverse information is the past criminal activity of an individual. If it is suspected that a person may be involved in financial crime, and authorities discover that that person has been previously caught for committing another crime, this gives authorities even more reason to suspect that individual to be involved. In contrast, if a person has no criminal history and is not known for associating with individuals who do, they are then at a much lower risk of being involved in something such as a money laundering scheme.

Adverse media checks can reveal involvement with money laundering, financial fraud, drug trafficking, financial threat, organized crime, financial terrorism and more. These links pose a serious threat to firms’ reputations and can lead to legal repercussions, especially if these firms operate within a regulated sector.

Because of this fact, many financial institutions that are heavily regulated by KYC policies are required to constantly be on the lookout for relevant adverse information in order to discover any hints or tip offs that may aid their investigations.

Veridas Digital Onboarding return the next scores after requesting PEP, sanctions and adverse media:

  • ValidasScoreHitSanctionTest: Shows if a match is in the sanctions lists (value=0) or not (value=1).
  • ValidasScoreHitPEPTest: Shows if a match is in the PEP lists (value=0) or not (value=1).
  • ValidasScoreHitAdverseMediaTest: Shows if a match has adverse media (value=0) or not (value=1).
  • ValidasScorePEPAndAMLTest: This score will be 1.0 if all the scores (ValidasScoreHitSanctionTest, ValidasScoreHitPEPTest, and ValidasScoreHitAdverseMediaTest) are 1.0 and 0.0 if just one of them is 0.0.

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These scores do not affect the ValidationGlobalScore