AML Screening for Prevention of Financial Crimes

AML Screening in the light of Compliance Regimes Around the Globe

AML Screening in the light of Compliance Regimes Around the Globe

AML compliance is inevitable for all types of businesses around the globe. The regulatory compliance face has been changing rapidly. According to a PWC (2018) survey, 2% to 5% (approximately $1-2 trillion) of global GDP is lost to money laundering. The authorities are becoming ever more vigilant in controlling and mitigating financial risk posing to the businesses and the economies of the countries as well. The regulations are not only targeting the money launderers but are also regulating their facilitators that assist hem knowingly or unknowingly in their acts. AML (Anti Money Laundering) practices have been carved for businesses around the world and all the regions require the businesses to perform due diligence on their customers in one way or the other. AML compliance is not as difficult for the organizations to follow as it may seem to be. An investment of a few thousand (dollars or pounds or yuan, etc) waives off the loss of millions in penalties. Here is where shufti pro enters the picture. The globally integrated system is designed to perform top-notch identity verification screening on the prospective customers of the business.

Which businesses are liable for AML compliance?

Most of the businesses are liable for AML compliance but in a broad spectrum, the businesses involved in any kind of financial services directly or indirectly are liable for AML compliance. Below is the list of the businesses that are liable to integrate a compact AML compliance solution into their organizations according to the global AML regimes:

  1. Banks and all their subsidiaries
  2. Brokerage houses
  3. Insurance companies
  4. Forex exchanges
  5. Auditors
  6. Casinos and online gaming sites
  7. Non-banks mortgage lenders
  8. Dealers in gold, diamond, and other precious metals
  9. Real-estate agents
  10. Money transmitters
  11. Cryptocurrency facilitators
  12. Fintech businesses and many others.

AML Regimes Around The Globe


The Chinese economy has become one of the most strong economies, all due to their strong laws and effective enforcement of those laws. AML compliance laws in China majorly comprise the enforcement of KYC (Know Your Customer) through identity verification protocols.

  • The liable businesses mentioned above are required to verify their identity proof and other documents.
  • Regular identity checks must be performed in case there is any change in the beneficiaries or other identity-related protocols.
  • The businesses must report any cash transaction over the minimum transaction threshold or if the customers do not provide identity proof.
  • Maintaining a complete AML compliance department is necessary.

The United Kingdom:

The UK has recently taken a progressive approach towards the financial regulations post-Brexit. Currently, the MLR-2017 (Money Laundering and Terrorist Financing and Transfer of Funds (Information on the Payer) regulations 2017) is prevailing in the UK. The liable businesses are provided a complete list of AML compliance checklist which addresses mainly the following things:

  • Identity verification of the customers before extending the services to them
  • Maintaining and regularly updating the identity verification and AML compliance records
  • Training the employees
  • Take enhanced due diligence in case of PEPs (politically Exposed People)
  • Performing due diligence on the online customers and overseas customers by checking them with the international sanctions lists, terrorist lists and the lists of high-risk countries
  • Proper reporting and monitoring of internal AML compliance practices of the company

The United States of America:

The Bank Secrecy Act (BSA) is currently thriving in the USA and is amended several times. The regulations are quite detailed and cover almost every side of the money laundering risk of the financial institutions and other institutions involved in financial services. Below are the key AML compliance regulations in the USA under the BSA.

  • Performing customer due diligence is a must for all businesses
  • Banks, mutual funds and other financial institutions must go one step ahead in performing customer due diligence and perform proper customer identity verification screening on their prospective clients.
  • Record keeping and maintaining a proper AML compliance program within the organization is necessary for all concerned businesses.
  • Businesses are required to register for financial information sharing to be used only for identification purposes.


In Canada, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) is implementing the AML compliances and FINTRAC is responsible for enforcement and compliance of this act. The key features of the prevailing AML Screening act in Canada are as follows:

  • Identity verification is necessary for all the businesses addressed in PCMLTFA
  • Banks are required to perform identity verification on their customers, or the companies before opening their accounts
  • The individuals must be identified through in-person or non-face-to-face programs (such as facial verification and online identity verification)
  • Banks must perform complete identity verification on the beneficiaries and legal signatories of the company before opening their account.
  • International electronic funds must be reported if more than CAD$10,000 (banks and Casinos are equally liable for this clause)
  • In case of non-compliance, the businesses are entitled to a fine of CAD$100,000 to CAD$ 500,000.

A summary of the key features of AML regulations around the globe:
Below is a summary of the key features of the AML regulations prevailing in different regions of the world:

  • The businesses are required to perform identity verification on their customers before entering into business with them
  • Customers should be screened for international sanction lists, terrorist lists, high-risk countries and PEPs (Politically exposed people)
  • The AML compliance practices must be performed regularly on all the customers
  • A proper record must be maintained for the AML practices
  • Any transaction above the “minimum cash transaction threshold” must be reported to the concerned authorities
  • Proper training of employees and an integrated AML compliance program
  • Fines in case of non-compliance

Shufti Pro is the ultimate AML compliance solution:

AML compliance is made easy with the Shufti Pro AML Screening solution. It has all the features required for a compact AML Screening solution that many businesses need today. Below are the key features of the Shufti Pro AML compliance solution that makes it a worthy and value-generating investment for businesses:

  • Identifies the people’s identities within a minute, hence reduces the friction in customer onboarding.
  • It provides global coverage, identifies the IDs of the people from any region of the world
  • Perform complete AML screening on your customers based on sanctions lists, PEPs, terrorist lists, and lists of high-risk companies.
  • Provides the proof of identity verification and AML screening of every individual
  • The Shufti Pro database is updated regularly hence reduces the risk of wrong verification.

To conclude, the financial and fintech businesses are on the verge of losing millions due to non-compliance with AML regulations. No matter which region of the world the business is prevailing the businesses dealing in financial services is bound to follow AML Screening protocols of different frequencies. Last but not least, regulatory compliances have never betrayed a business, the investments in such compliances generate company value and provide cover against fraud and identity thieves.

AML Screening

AML Screening – How it might infiltrate Your Business

Money launderers are a very clever lot. They are constantly looking for loopholes to exploit. They can sneak into your business as well, which is why it is essential that you understand how they operate. Banks and financial institutes are their primary target but other businesses are on their hit list too. One effective method in this regard is to implement AML screening.


It is the physical placement of money, for instance, in a bank, casino, local or international shop or bureau de change (currency exchange). Here are a few ways money launderers operate;

  • Smuggling Currency – Physical movement of currency or financial instrument such as bonds across the border
  • An Accomplice Bank – A banker that knowingly accepts deposits from smugglers and criminals
  • Currency exchanges – Where there is liberalization of the foreign exchange market, there is room for laundering money
  • Securities broker – The securities brokers who would put investment into different tranches to divide it to thwart any suspicions
  • Blending funds – Criminals might open front companies to fool the authorities. Then, they start mixing the dirty money with the clean one. It’s akin to hiding cash within cash
  • Asset Purchases – The most obvious form of laundering money is to purchase big assets. Once the transaction takes place, tracing back the source of income can be a challenge


The launderers try to hide the money under different layers. There are two major ways they do it;

  • Converting dirty money into financial instruments. Banker’s drafts and money orders are readily used for this
  • Buy and sell. In this case, the criminal buys a large asset with illegal money then sells it, locally or internationally. After this buy-sell cycle, tracing the asset back to the criminal’s source of income becomes difficult.


This is the phase where laundered money is brought into the economy, usually through the banking system. It is different from layering because here usually an informant tells the law enforcement agencies about it;

  • Property Dealing – Buying property from illegal money is a common form of laundering money. Usually, this is done through a shell company.
  • Shell Companies and Fake Loans – The culprits create a fake company and then give a loan to themselves. This loan amount is the laundered money
  • Foreign Banks as Accomplices – If a foreign bank is an accomplice in laundering money it would be difficult for law enforcement to investigate and act since such banks are protected by international laws.
  • Bogus invoices from import/export – Money launderers also use import and export as a way to enter black money into the system. They would exaggerate a bill to justify the payment by creating fake invoices or inflating the value of funds received from exports.

How to Keep Your Business Safe

Compliance measures such as Know Your Customer (KYC) and Anti Money Laundering (AML) are extremely helpful in keeping your business safe. Since in the majority of money laundering cases, some form of banking service is involved, AML screening and KYC compliance are mandatory for banks and financial institutes.
Compliance is not that difficult especially when you are using professional AML screening solutions. When a bank gets defamed for helping in laundering money it is not necessarily the entire bank that is responsible. It could be just an individual acting in their individual capacity.
By integrating third-party services such as Shufti Pro, the banks can put in highly effective AML screening and KYC checks. This not only protects your business from money launderers but ensures compliance as well.

AML Checks

AML Checks: An Emerging Frontier in RegTech Revolution

The Anti Money Laundering (AML) landscape has been around since the signing of BSA (Bank Secrecy Act) in 1970. Financial institutions have been battling with compliance regulations since forever. Over the years the financial services industry has confronted $26 billion by way of non-compliance fines. To enable the banking sector to fulfil its compliance obligations, the RegTech industry has come up with some of the most technologically advanced solutions. They are able to enhance the capability and output of compliance teams in banks and financial service firms. From advanced analytical tools to anti money laundering checks, banks are now able to fight fire with fire.

Overspending on AML Compliance

The risk of money laundering has increased significantly due to the fact that overseas transaction volumes have increased making the financial system more vulnerable to financial crimes. The constantly changing AML regulations and the increase in non-cash payments have added to this risk infinitely as well. But the banking sector has been dealing with all these challenges by investing heavily in the expansion of their compliance teams. This has not only increased their annual spending on AML compliance – $3.5 Billion – but has made the process, if anything, more complicated than ever before. In the US compliance staff in banks has increased exponentially.

The Drawbacks of Prevailing AML Systems

For the moment, AML systems currently resemble operational units that have huge overheads and still employ manual procedures to manage client profiles. The cost of such compliance teams would have been acceptable if only they were as effective. Some of the major drawbacks of these AML systems include;

  • Large amounts of unstructured data make it difficult for different teams to accumulate and organise information. This ultimately causes operations to slow down, creating friction in onboarding procedures. Banks still resort to calling each customer individually to update their documents for KYC (Know Your Customer) procedures. Simple tasks such as these can be easily automated.
  • The systems in use for analysing client data are outdated and slow. Such legacy systems use fixed rules for analysing customer data and are unable to account for unforeseen scenarios. This rule-based approach generates a large number of false positives, that ends up wasting a significant amount of time and money to be wasted towards investigating bogus leads.
  • Outdated systems also result in erratic reporting of suspicious activity. As financial institutions deal with a large number of customer data, the system can produce an equal amount of false positives, thereby causing the compliance team to overlook legitimately high-risk cases.
  • Due diligence procedures in banks are still manual. They rely on manual identification, verification and screening of clients, which are both slow and have a higher rate of inaccuracy.
  • The complexity in financial transactions and the proliferation of faster services has made it difficult for financial companies to monitor client activity. Online payments and anonymous fund transfers also lack adequate KYC and AML procedures.

As prevailing systems are becoming more and more inefficient and costly, banks are exploring new avenues to perform AML compliance. An emerging avenue in this regard is regulatory technology or RegTech that is enabling the financial sector to implement advanced tech solutions to aid their AML compliance functions. More than anything, these systems have the ability to reduce costs and enhance the onboarding process. All such tools can make compliance systems in banks more feasible and cost-effective.


AML Compliance Systems and Tools

The RegTech space is now leveraging technologies like AI and big data to make streamline compliance procedures in banks and financial institutions. One such system is advanced analytics that can intelligently analyse client data and process it within minutes. The current analytical models being implemented are rather tuned to explicit regulatory and anti-money laundering requirements. Therefore, nearly 90% of the warning signals generated by them are false positives.

However, advanced analytical tools are now allowing banks to venture beyond such legacy systems. They primarily operate based on machine learning algorithms that can learn from past behaviour and issue alerts using predictive analytics. They sift through past data to look for patterns and determine legitimate and suspicious transactions. Such analytical models require large data sets to work with that financial companies can provide easily. ML algorithms help reduce the number of false results significantly, thereby saving ample time for compliance teams to investigate legitimate alerts. The manual work in such cases can be reduced by at least 50%.

The Fintech industry is still working on developing more advanced systems. They are using deep learning which is a step further from machine learning. It can be used for image processing and to imitate human speech. In short, it is able to mimic human cognition and implement intelligence towards the investigation of financial crimes like humans do. Efforts are being made to refine such processes and bring them into the mainstream.

Anti Money Laundering Checks

Another simple yet highly effective tool for improving AML compliance is AML screening. Anti Money Laundering checks also use AI to perform background checks of individuals by screening them through global sanction lists and databases. AML & CTF checks enable banks to screen out money launderers, financial criminals and Politically Exposed Persons (PEPs). Financial institutions can choose whether or not to take on a flagged person as a client or to at least classify them as a higher risk client and thus charge higher premiums accordingly.

Shufti Pro is an anti-fraud solution that uses AI and Human Intelligence to provide KYC and AML verification services to businesses. It can effectively help prevent your business from financial crime laundering through anti money laundering checks. Shufti Pro is providing ongoing PEP screening for clients wherein banking institutions can execute ongoing screening for a specific list of clients or even their entire clientele. They can also implement batch screening which allows them to screen existing customers through AML sanction lists.

Recommended For You:


PEP Compliance

What is PEP Compliance and Why do Financial Institutions Need it?

According to the global financial regulator FATF (Financial Action Task Force), a PEP or a Politically Exposed Person is one who is or has been entrusted with a public office or function. It can include anyone from the Prime Minister of a country to a locally elected official in a small town. It also includes senior officials in administrative, legislative, military or other branches of a government – whether still serving or retired. All such people require financial services but are, at the same time vulnerable to financial crimes like corruption and money laundering. The financial services sector, therefore, classifies them as higher risk clients and implement the necessary PEP compliance measures to protect themselves from being implicated in such crimes.

However, it is not just financial institutions that require compliance and regulatory measures. Designated Non-Financial Businesses and Professions (DNFBPs) that includes audit and law firms, dealers of precious stones and metals, real estate agencies and trusts. PEPs are in a unique position of, and have a better opportunity to, accept bribes, embezzle funds and launder money. This makes them riskier for banks and other businesses to onboard as clients. But with the proper measures, it is possible for the financial sector to mitigate their risks.

What is PEP Compliance?

Once a financial institution or DNFPB has determined that their client (or potential client) is a PEP, it is important for them to implement the necessary AML/CTF (Anti Money Laundering and Counter-Terrorism Financing) measures to monitor the risk associated with their clients. Such measures include enhanced due diligence of clients, transaction monitoring and building risk profiles of clients to enable them to safeguard their business from being used for any kind of financial crimes. Implementing PEP compliance does not necessarily mean that a person or client is being scrutinised for involvement in criminal activity. It simply indicates that their risk level is higher than any other client the bank may have.

Who May be Included in PEPs Lists?

The FATF has increased its scrutiny over governments and financial institutions around the globe. It has classified the following entities as politically exposed;

  • Serving or retired/discharged official in the executive, legislative, administrative, military or judiciary departments of a government.
  • Senior officials of a political party with a significant following.
  • Executive members of a state-owned enterprise that is a business or corporation.
  • Immediate family members of all such individuals, above mentioned. This includes parents, spouse, siblings, children and spouses parents and/or siblings.

All such types of PEPs are designated different levels of risk according to their involvement with a political or public office or position. These individuals can be domestic as well as foreign. A domestic PEP may include a senior official of a local political party, corporation, a politician or an official from a state institution. On the other hand, an individual is a foreign PEP if he/she holds a notable position in a foreign country.

Why is PEP Compliance Necessary for Financial Institutions?

All such individual who falls under the PEP definition must be classified according to their level of risk and hence be screened. Financial institutions have to implement some PEP AML measures in order to reduce their risks and liabilities. With the increased scrutiny from local and international financial regulatory authorities, it has become important for financial institutions to protect themselves from all kinds of fraud and financial crimes. Regulators like FATF and FinCEN have issued millions of dollars in sanctions and fines to financial institutions for not complying with AML laws and regulations. This in itself is a strong enough motivation for businesses to screen for politically exposed persons.

After getting a clear picture of what is a PEP and classifying the individual as high, medium or a low-risk individual, a financial institution must then implement ongoing due diligence measures. This can include anything from constant screening to the monitoring of transactions to maintaining risk profiles of such clients.

Real-Time AML Screening

Shufti Pro offers comprehensive PEP compliance for the financial services sector and DNFPBs and covers over 200 jurisdictions around the globe. It uses more than 10,000 data sources, that are updated every 15 minutes, to screen PEP individuals all over the world. It runs AML screening checks in the background, without any delays and can relay results within 5 seconds. Businesses can implement these checks of their clients through three different screenings including ongoing screening, which is performed constantly for certain high-risk individuals. This allows them to receive an alert whenever a client is added or removed from a watchlist. Another type of screening performed by Shufti Pro is through batch screening where a bank can feed their existing client list for AML checks and can get a comprehensive idea of which of their clients are included in PEP lists.

Recommended For You:

AML Compliance

Billion Dollar AML Compliance Plan for the Financial Sector

The financial services sector has long been blamed for the spread of financial crimes like money laundering and tax evasions. Over the past ten years, banks and financial institutions all over the world have faced billions of dollars in fines due to non-compliance and failure to implement adequate regulatory requirements. The regulatory authorities in the US, in particular, have been extremely active against non-compliance with Anti Money Laundering (AML) regulations. The US Department of Justice doled out fines worth $14 billion to financial institutions. That covered over half the sum of global financial regulatory fines over the past decade. All in all financial regulators have collectively imposed over $26 billion by way of sanctions and fines to banks and financial institutions around the globe.

More stringent compliance regulations can be dated back to the 2008 financial crisis. Ever since then global regulators have been rallying to make the financial services sector safer and more transparent. More than 50,000 regulations were distributed between 2009 and 2012. Several high profile scandals erupted in the wake of increased regulations all over the world. To date, the single highest fine against one financial institute was of $8.9 billion, wherein the bank, BNP Paribas, admitted its fault.

Are Non-Compliance Fines Avoidable?

What is surprising is the fact that these fines and sanctions are completely avoidable. The cost of establishing and maintaining an effective compliance structure is nearly three times less than the losses faced by banks in the form of non-compliance penalties. The financial services sector has been battling with the best way to approach compliance regulations. Compliance structures in banks are outdated and slow. The biggest obstacle for banks to implement an effective procedure is the lag it causes in the client onboarding process. Verifying every client and carrying out the due diligence takes time and tends to frustrate clients, thus lowering satisfaction levels for a financial institution.

Banks end up spending over 2.7 billion pounds – $3.5 billion – every year on AML compliance systems that are both outdated as well as inefficient. Legacy systems are still in use by some banks that churn an inexplicable amount of false positives. As the compliance staff chases after false leads, they end up spending their energies on validating cases of fraud rather than investigating them.

In order to avoid millions, or possibly billions, of dollar in fines, financial institutions build colossal compliance regulatory structures within their business, spending millions. They often have to hire an army of compliance officers, just to keep up with the changing regulatory framework.

Achieving AML Compliance Through Technology

There are, however, better ways to approach AML regulations. Modern technology can contribute a great deal towards building better compliance structures in financial institutes. The Fintech sector has long been working on developing systems that are both effective and efficient. This technology is increasingly being referred to as regulatory technology or RegTech. RegTech systems are now using technologies like artificial intelligence and machine learning to make compliance functions easier for banks.

One way to approach AML compliance is through suspicious activity reporting. Systems that use machine learning algorithms are used to detect suspicious transactions. These algorithms learn from past behaviour and data to flag fraudulent transactions. More to the fact, they are used to monitor a client’s transactions to determine their normal behaviour. Every time any suspicious or potentially fraudulent transaction is detected on a client’s account, it is either blocked or an alert is issued to the management to take the appropriate action.

Read More: RegTech facilitates effortless AML Compliance

In addition to AML regulations, financial regulators have also issued KYC or Know Your Customer requirements for businesses to adhere to. These obligations further bind financial institutions to conduct enhanced due diligence for high-risk clients. The proliferation of tech solutions in the market has made it easier for banks to fulfil these requirements.

Other tech solutions also provide AML screening checks to fulfil AML requirements for financial institutes. AML checks screen a customer’s name through global sanction lists issued by global regulatory authorities. Screenings of clients can be performed in real time and take place in the background, so as not to disrupt the onboarding process.

Banks can now avail the services of a KYC service provider to authenticate their clients’ identities. This allows them to make sure that their customers are not using fake credentials or stolen identities to open a bank account or avail other financial benefits. The bank asks for a proof of identity from a client during the onboarding process, and authenticates their identity in real-time, with the help of digital ID verification.

The Future of AML Compliance

As the hype for technology-based solutions for implementing compliance structures is at its highest, financial institutes need to evaluate their existing procedures. The financial services sector is fast coming to terms with the prospect of implementing fast and productive AML solutions to decrease their costs. In a way, investing in tech solutions seems the most effective approach for banks to save billions of dollars in non-compliance costs.



US Treasury opposes European Commission AML Country List

The European Commission has adopted a new list of 23 countries which lack appropriate framework for anti-money laundering and counter terrorist financing.

On February 13th, the EC published its report on the state of AML; threats and possibilities. Iran, Iraq, Saudi Arabia, Puerto Rico, Pakistan, Sri Lanka, and North Korea are among the exhaustive list. According to EC, these territories “pose significant threat” to the financial and trade ecosystem due to key strategic flaws. The U.S. Department of the Treasury has highly criticised EC’s inclusion of four American territories; Puerto Rico, Guam, American Samoa and the US Virgin Islands under the high risk category.

In a continuity of political backlash, Panama has termed its inclusion to the list as “unfair punishment”.

The U.S. Treasury Department published a press release on the same day stating the evaluation process and methodology adopted by EC to be questionable. The process of developing the list lacks an in-depth review to perform assessment.  The countries added to the list were informed only a few days before publication of the report. The official commentary does not include a substantial guide to improve measures or appeal for exclusion from this list. Even the assessment seems to be perfunctory.

The Department quotes FATF; globally recognised standards body for AML/CFT as a benchmark for assessment procedures. Compared to FATF’s legally and research intensive methodology as well as dialogue formulation with territories, EC’s report appears deficient in terms of data, information, and method. The body goes on to reject the report. It announced that U.S. is committed to the AML/CFT standards as set forth by the FATF and will go on to ensure strict compliance with them. The Department has further intimated that U.S. financial institutions are under no legal restrictions to entertain or acknowledge EC’s findings.


The EC member states United Kingdom and France have already expressed their strong concerns over the publication of list by EC. The countries have strong trade and economic ties with list additions such as Saudi Arabia. The Saudi representatives regrets country’s inclusion to the list. Media, however, is discussing possible outcomes that could threaten the Vision 2030 investment.

As of now the EC has not made any further comments in this regard. The list compiled by EC is submitted for final approval by European Parliament and Council. After which it will officially come into force.

Studies show that USD 2 Trillion is laundered through AML software for banking systems. As compliances are growing stricter the need to improve AML/CFT measures by organisations is stronger than ever.


Why PEPs are High Risk and a Threat To Your Business?

In Financial and Trade industry, you may have often heard the term PEPs and importance of early stage PEP detection in order to offset money laundering and terrorist funding.

Politically Exposed Person(s) (PEPs) are profiled individuals who currently hold a public office or are associates of such personnel. The global approach by regulatory and financial bodies limits doing business with PEPs. Owing to likelihood of money laundering, bribery, and terrorist funding that may results due to influence of such individuals. Financial institutes view PEPs as a compliance risk. EU, UN, FINCEN, SECO and other regulatory bodies have strict rules when it comes to interacting with potential customers who are not vetted to assess their risk status. This a key component of AML compliance.

Organisations are subject to hefty fines and legal actions in case of non-compliance.

FATF defined PEPs

The Financial Action Task Force (FATF) is an intergovernmental organisation. It was established as an initiative by G7 to create practical policies for anti money laundering and due diligence. It acts as a supervisory body and formulates recommendations to assist legal framework of global financial space. Global institutions consider FATF’s guidelines as International Standards.

The latest definition of PEPs provides with four categories:

High Risk – Level 1 PEPs

  • Heads of state and government
  • Members of government (national and regional)
  • Members of Parliaments (national and regional)
  • Heads of military, judiciary, law enforcement and board of central banks
  • Top ranking officials of political parties

Medium-High Risk – Level 2 PEPs

  • Senior officials of the military, judiciary, and law enforcement agencies
  • Senior officials of other state agencies and bodies and high ranking civil servants
  • Senior members of religious groups
  • Ambassadors, consuls, high commissioners

Medium Risk – Level 3 PEPs

  • Senior management and board of directors of state-owned businesses and organisations – e.g. Chairman of a Bank

Low Risk – Level 4 PEPs

  • Mayors and members of local county, city and district assemblies
  • Senior officials and functionaries of international or supranational organisations

PEPs and Compliances

Financial Authorities and Regulatory bodies translate FATF’s guidelines into practical rules. Compliances define risk involved according to the nature of businesses. How and when to apply Customer Due Diligence. These compliances at international or state level monitor security measures taken by organisations. They identify and loopholes that may be there. As per compliance rules, it is a requirement for certain Institutes to perform Enhanced Due Diligence when it comes to PEPs.

Identifying PEPs

In order to implement AML compliance for PEP identification, businesses and financial institutions must have procedures in place to effectively identity and restrict a PEP. To do this two questions are of importance:

(i) When do you check for a PEP?
(ii) How do you check for a PEP?

EU and FINCEN regulations state that strict customer due diligence must be applied before establishing any business relation with a potential customer. This indicates that PEP screening must be done during the on-boarding process.

Financial Action Task Force (FATF) establishes a standardised “list” of known entities and profiles updated on daily basis with new data extracted from global sources. This enlists all individuals on the basis of their personal information (Name, DoB, Country of Residence) which satisfy FATF’s definition of a PEP. All potential customers must be screened against these lists to ensure that they are not present in them.

Is there a such thing as a good PEP?

The answer is no. The concept of PEPs is not defined on moral grounds. All PEPs are not inherently “bad”. Not in terms of morals. The risk of a PEP is relevant to possibilities to commit illegal activities under the Risk Based Thinking model. Risk Based Thinking approach means to ensure practices in place to proactively address future disasters.

As per FATF’s definition of PEP, four distinct categories are given. Businesses can apply restrictions and train their systems accordingly. A low risk PEP may be allowed performing transactions while a high risk PEP may not be allowed entry in the system altogether.


Click here to perform a quick test and see how PEP identification is done in action.

More posts