Global PEP and Sanction Lists

Global PEP and Sanction Lists

Politically Exposed Persons (PEPs)

A politically exposed person (PEP) is an individual with a prominent public function posing high-risk in terms of vulnerability to corruption. PEPs hold important positions and influence in the society therefore, they are prone to be abused for the purposes of criminal activity such as money laundering, bribery, corruption or activities related to terrorist financing. Due to the fact that politically exposed persons (PEPs) have higher risk for crimes, regulatory authorities highlight the importance of what is a PEP and how to recognize and detect a PEP for the financial institutions. Financial institutions are entitled with operating PEP checks regularly and anti-money laundering (AML) regulations include PEP sanctions as well.

Types of PEPs

Politically exposed persons (PEPs) have sub-classes within themselves depending on the risks they are posing such as domestic or international organization PEPs and foreign PEPs. Relatives and close associates (RCA) are defined as the individuals or businesses that have a close relationship or somehow related to a Politically Exposed Person (PEP). They are not as risky as PEPs but they still have the potential to commit financial crimes since they are prone to corruption and bribery because of their connection with the Politically Exposed Person (PEPs).

PEP Lists

A PEP list is simply a database of politically exposed persons (PEPs) who hold a crucial position in public and vulnerable to financial crime. Government ministers, high-ranking military officials, world leaders, or senior executives are some of the examples of PEP lists. PEP lists have a critical role in carrying out effective anti-money laundering (AML) checks. There are two types of PEP lists:

  1. Database of named or documented PEPs: Anyone included in this list is a confirmed politically exposed person (PEP) but if the potential customer is not on this list, it does not necessarily mean that the customer is not a PEP.
  2. Database of functions, positions and roles: The features included in this list are the ones that would qualify an individual as a politically exposed person (PEP) who is more vulnerable to be potentially involved in financial crimes.

Sanction Lists

In the international fight against financial crimes, the role of financial sanctions is significant as they are utilized by the governments to prevent or restrict trade with foreign bodies which might be connected with illegal activities. For this purpose, sanction lists that include sanctioned individuals, organizations and countries are published by governments and global authorities. Financial institutions are checking these sanction lists to see whether their potential customers are listed in them or they carry a high risk of being involved with criminal activity such as money laundering. The sanction control is to be applied at the onboarding process as a part of Customer Due Diligence (CDD) and Know Your Customer (KYC) processes and to be renewed regularly.

The Purpose of Sanction Lists

The ultimate aim of the sanctions and sanction lists is to ensure economic stability and higher confidence in the financial systems. Therefore, most of the global sanction lists include persons, organizations or governments that are or may have the potential to be involved in the financial activities which are:

  • Terrorism financing
  • Trafficking of narcotics
  • Violation of human rights
  • Money laundering
  • Proliferation of weapons
  • Violation of international contracts