A Guide to Politically Exposed Persons (PEP) and Sanctions Checks
Politically Exposed Persons (PEP) and Sanctions Checks
· Global money laundering is estimated at $800 billion to $2 trillion annually, or 2–5% of global GDP.
· According to the 2025 UNODC report, only 1% of illicit financial flows are intercepted.
· Financial institutions incur approximately $180 billion in AML-related fines each year.
PEP and sanctions checks are critical components of Customer Due Diligence (CDD). They help identify high-risk individuals and entities, reducing exposure to money laundering, terrorism financing, and regulatory breaches.
Regulatory Requirement
Entities subject to AML/CTF regulations must conduct PEP and sanctions screening as part of Know Your Customer (KYC) or Know Your Business (KYB) processes. Non-regulated entities are also encouraged to adopt these checks due to their low cost and high-risk mitigation value.
Politically Exposed Person (PEP)
A PEP is an individual who currently holds or has previously held a prominent public position (e.g. head of state, MP, mayor). Due to their influence and access to public funds, PEPs present a higher risk of financial crime. Close associates and family members are also subject to scrutiny.
Sanctions Screening
Sanctions screening involves checking individuals or entities against official sanctions lists issued by bodies such as the UN, OFAC, FATF, DFAT, and OFAT. These lists are typically more detailed than PEP lists and include identifiers such as passport numbers and dates of birth.
Screening Process
Customer names are screened against global databases and media sources. Matches are assessed using; AI, fuzzy logic, and rule-based systems to distinguish between true and false positives. Geographic context and list origin are critical to accurate interpretation.
Challenges
· Fuzzy Matches: Variations in spelling, aliases, and transliterations can complicate identification.
· Regulatory Changes: Lists are dynamic and require frequent updates.
· Data Quality: Incomplete or inconsistent data can hinder verification, especially in PEP screenings.
Role of Automation
Software enhances screening by:
· Accessing thousands of data sources simultaneously
· Reducing manual errors and processing time
· Generating audit trails for compliance
· Allowing staff to focus on higher-value tasks
Who Benefits
Large financial institutions with high onboarding volumes
Private banks and wealth managers serving high-risk clients
Non-regulated businesses seeking to strengthen risk controls
Conclusion
PEP and sanctions checks are not just regulatory obligations—they are critical safeguards that protect organisations from reputational damage, financial penalties, and inadvertent involvement in illicit activities. Embracing automation in these processes transforms compliance from a reactive necessity into a proactive strategic advantage. By enhancing speed, accuracy, and transparency, platforms like VerifiMe empower both regulated and non-regulated entities to navigate complex risk landscapes with confidence and integrity.
