By Rudi Kesic – CEO at Verify 365

30 October 2022 – London

In a time where controversial political headlines are the norm, politicians are being constantly criticised regarding their dodgy taxes, and “dirty money” passes through the hands of the government officials, it may seem more like a political drama than real life. However, it isn’t just fiction (nor has it ever been), so if you run a regulated law firm in the UK, it’s time that you understand what a PEP is and what the laws surrounding them are.

Politically exposed persons (PEPs) and sanctioned individuals must be identified by law firms in the UK when onboarding new clients and opening new matters.

To comply with the Solicitors Regulation Authority’s and HM Land Registry’s requirements, regulated law firms must undertake PEPs and sanctions checks as part of your customer due diligence process (CDD).

Keep reading to learn why PEPs and sanctions designations are necessary and how to navigate PEPs and sanctions screening for your law practice.

Who is considered a Politically Exposed Person for legal sector AML checks?

A PEP is someone who is seen as being at a higher-than-average risk of money-laundering resulting from bribery or corruption due to them holding a high profile position, or proximity to someone in a political position.  The Financial Action Task Force — the global watchdog for money laundering and terrorist financing — defines a PEP this way:

“A politically exposed person (PEP) is an individual who is or has been entrusted with a prominent function. Many PEPs hold positions that can be abused for the purpose of laundering illicit funds or other predicate offences such as corruption or bribery.”

Some positions that mean someone may be considered a PEP are governmental and parliamentary positions, high ranking members of the armed forces and members of high-level judicial bodies.

It’s important to note that someone may also be considered a PEP if they are in close proximity to someone in an at-risk position. For example, family members, close business associates and beneficial owners of the person’s property.

What is PEP screening and its purpose?

The definition of a PEP can change, the criteria could vary from country to country or even office to office.

Its seen as quite a broad phrase but some examples include:

1. Senior political figures

2. Senior executives within a government owned commercial company

3. Senior government officials

4. Senior members of law enforcement agencies

5. Senior members of religious organisations

These public figures present a higher risk of bribery, as there is a fear they could be corrupted, and someone could take advantage of the influence this person may hold.

Therefore, a PEP isn’t just the influential person themselves that carries this reputation.

It could include:

1. Immediate family members

2. Close business associates

Publically known personal associates

Basically, a PEP is anyone close enough to the politically exposed person in question that may be able to sway their influence through corruption, bribery, or in a position to help the individual exploit the public’s trust.

You’ve probably seen a lot of this if you’re a fan of Political TV dramas, but it happens in the real world too.

Unfortunately, in the real world, it’s up to businesses to know the person they’re working with and carry out the necessary checks to avoid the risk they may impose.

See link: https://go.fenergo.com/global-regulatory-fines-2018.html

Why are PEPs and Sanctions checks necessary for AML compliance?

Law firms in the UK are mandated to complete PEPs and sanctions screening checks as part of their AML compliance procedures and client onboarding (customer due diligence) when taking on new clients and opening new matters.

Based on the results of these anti-money laundering checks, solicitors may then be required to complete additional screening before deciding whether to take on the client. These AML checks form a small part of an overall KYC workflow.

The US, UK, EU and other countries or bodies, such as the United Nations, may impose sanctions on countries, businesses or individuals to prohibit doing business with them. The UK government defines the purpose of sanctions as being “to change the behaviour of the target country’s regimes, individuals or groups in a direction which will improve the situation in that country.”

Who decides if you should not act for a PEP or a sanctioned individual?

There are many different sanctions lists. CAPTA (Correspondent Account or Payable-Through Account) is the sanctions list created by the US Department of the Treasury’s Office of Foreign Asset Control (OFAC).

The EU and UK have their own lists.

According to the US Treasury Department website: “Every transaction that a US financial institution engages in is subject to OFAC regulations. If a bank knows or has reason to know that a target is party to a transaction, the bank’s processing of the transaction would be unlawful.”

For a company with a direct or indirect presence in multiple countries, whether by virtue of an office or a branch, a sales presence, or partnerships, they might need to have an oversight of many different lists to ensure they remain compliant across geographies.

PEPs and Sanctions AML checks made easy with Verify 365

If you switch to Verify 365, we will make sure your law firm keeps up with ever-changing AML PEPs and sanctions regulations. Whether your prospective client is a corporation or an individual, our all-in-one Verify 365 AML solution covers every base, so your practice is protected.

Our fully automated platform performs a wide range of UK and international anti-money laundering PEPs and sanctions checks using over 500 Watch Lists, which are updated every day.

By using Verify 365, you can fulfil your KYC requirements, sanctions checks, screening for Adverse Media, checks for PEPs, SIPs and PSCs, as well as get assistance with Enhanced Due Diligence and ongoing monitoring, all in one place.

What is the best practice for PEPs and sanctions checks for solicitors?

Generally, solicitors firms in the UK are expected to take a risk-based approach — no one size fits all. This typically means new clients are assessed during the initial AML process to decide whether CDD or EDD is necessary.

Customer due diligence (CDD) and enhanced due diligence (EDD) are different tiers of know your customer (KYC) processes completed by law firms when opening new matters. The regulations are mandated by regulatory agencies such as the Solicitors Regulation Authority, HM Land Registry and the England and Wales.

Regulation varies both depending on where in the world you are and in which area of legal practice you operate – and you should always seek local AML compliance advice depending on your specific circumstances – but there are some broad similarities regardless of geography and industry.

Businesses must comply with CDD and EDD requirements or face AML fines or regulatory penalties, like practicing certificate suspensions or revocations.

When it comes to PEPs and sanctions list screening, many law firms are now moving towards automated AML check providers such Verify 365 that provide real-time screening and track changes in lists.

Verify 365 provides instant AML reports to law firms during client onboarding, and if required provides ongoing monitoring — so we can inform your solicitors practice of changes of status to individuals to indicate if they are sanctioned having already been onboarded.

Verify 365 checks are run automatically, but it is good practice (at minimum) to check new clients each time: (i) the relevant sanctions lists are changed; and/or (ii) there is a change in the client’s details. It is also good practice to include directors, beneficial owners, and third-party payees in the screening.

Verify 365 PEP and sanctions screening solution

Verify 365 PEP and sanctions screening solution screens client data at onboarding and can be configured to re-screen users against chosen sources every 24 hours, and notify you with any updates.

We provide the best solution in the market and supercharge our performance by using AI to index and dynamically update our data. This means we provide responses in real-time, so you can make instant decisions that don’t keep clients waiting.

Find out more about how Verify 365 PEPs and sanctions solution can help law firms meet AML regulations by emailing info@verify365.app, REF: Verify 365 PEP and sanctions screening solution.

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