What Steps Are Involved in Performing PEP Due Diligence?

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Do you know What PEP due diligence actually means? According to anti-corruption campaigner Eliot Spitzer, “Compliance programs are not optional as they are mandatory.”

PEP due diligence is a seriously important compliance requirement for financial institutions to prevent money laundering and other corrupt activities.

PEP due diligence, also referred to as Politically Exposed Persons owing diligence, is an additional process for identifying, assessing, and mitigating risks.

PEPs are defined as individuals who currently hold or have held public offices and even those members of their families.

As they enjoy a higher position, financial institutions have labeled them as being at a more heightened risk of committing crimes like bribery, embezzlement, and corruption.

The integrity and adherence to regulatory compliance of financial institutions depend entirely on proper PEP screening. In this article, we will discuss the steps involved in performing PEP Due Diligence.

Identifying Politically Exposed Persons

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The financial firm must be aware of who your client is. Businesses use PEP Databases to check client names.

PEP Databases provide information on current and past VIPs in politics, as reports indicate that over 50% of global banks rely on such databases to mitigate risks associated with PEPs.

Bonus: Proper PEP due diligence is the core of any financial business. Learn more about our PEP screening solutions at our website.

Gather background information sources.

To get a better understanding of the PEP clients, firms collect PEP information from various sources. They scour through different PEP check screening tools and PEP databases.

The providers of the databases give background information about his position and nation. According to FATF, around 80 percent of financial institutions incorporate PEP checking into their risk assessment activities.

All the information found helps support the remaining PEP due diligence process. It tries to understand every PEP and the risks they carry fully.

Screen against global watch lists

The watch list represents risky people financial companies must not deal with. The PEP check scans clients against worldwide sanctions and watch lists.

A PEP Check ensures that nobody on the company’s clients list appears on sanctions and anti-money laundering related lists for any activity related to corruption or crime.

In 2023, financial institutions paid a staggering $2.4 billion in fines for violating sanctions and anti-money laundering regulations.

Conduct in-depth Internet research.

The PEP Due Diligence Process involves research on the deep web. Financial companies do research on PEP clients over the Internet.

They fetch PEP data from search engines and social networks, and studies have shown that almost 80% of financial crimes had their roots in poor PEP screening.

It helps to crosscheck other information. Companies seek anything that sketches a PEP’s character and business transactions.

More information determines if working with this PEP is really high risk. Much intensive online research helps in the process of PEP screening.

Verify customer identification documents.

Companies verify a PEP’s identification papers through the PEP Due Diligence. ID papers prove that the PEP is who they are proclaiming to be.

Companies crosscheck information like names and dates agreed upon in PEP databases with the details agreed upon in papers.

The Financial Action Task Force further suggests that countries must carry out enhanced due diligence on 60% of PEPs to address risks effectively.

This PEP check prevents fraud and lies from taking place. Proper verification guards the finance business against illegal activities.

Interview the client to assess risks.

Direct questioning will help us better understand the risks involved. Financial managers get discussions to learn further.

They found many details that were missing and that need to be included in the search pertaining to the PEP Data.

Interviews provide a feel regarding the trustworthiness of the PEP. This helps decide if taking them on as a customer would lead to compliance or legal troubles in the future.

According to the Financial Action Task Force 2023 report, over 80% of financial companies state that interviews significantly contribute to the process of identifying high-risk clients.

Monitor business relationships constantly.

To be part of PEP Due Diligence, companies must always watch client partnerships. Staff look out regularly through the PEP Screening process. They check PEP databases and data sources to see if there are any changes.

According to a 2023 report from the FATF, 40% of financial institutions faced penalties for insufficient PEP monitoring. This PEP Check will guarantee no new risky behaviors emerge after.

Continuous monitoring offers protection to the finance business against future problems. It ensures that PEP screening is legal from the beginning until the end of each relationship.

Train staff on ongoing requirements

Proper PEP Due Diligence requires an educated staff. Therefore, companies offer continuous PEP training. They instruct how the PEP procedure works as well as why it is essential.

Staff members learn where to locate crucial PEP information in the screening process. Training makes it easier to run customer checks with fewer errors.

Organizations with thorough PEP training programs can even minimize compliance mistakes by up to 30%.