When you work in the financial sector, avoiding scandals and corruption is a top priority. Your organization can easily be a target for money laundering, terrorist funding, fraud, and other crimes. Therefore, it’s your job to take extra precautions and conduct regular sanction screenings on anyone who works with your business.
Sanction screenings are important for two reasons: they keep your organization compliant with industry requirements, and they prevent your business from becoming part of criminal activity. But what types of sanctions should you be looking for – and which customers should be screened? Here is what you need to know about sanction screenings in the world of finance.
Types of Financial Sanctions
Because the United States has so many different governments at the state and local levels, there are many different sanctioning bodies you must consult to ensure that your business can safely work with certain people. This means that you must do your due diligence and consult sanctions lists from federal, state, and local offices.
Federal, State, and Local
The Office of Foreign Assets Control (OFAC) is the governing body that enforces economic sanctions in the United States. OFAC maintains several lists of individuals and companies that are known to be owned, controlled by, or acting on behalf of sanctioned groups. This includes terrorist organizations, narcotics traffickers, and several other groups involved in criminal activity.
Individuals and businesses may also appear on state or local sanctions lists. They may not be allowed to do business in certain states or cities, or they may have their assets frozen due to investigations or suspicions of criminal acts. It is very important to check all sanctions lists you can access to make sure your business isn’t exposed to any dangerous activity.
Business vs. Personal Sanctions
Sanction screening protocol varies based on the clients with whom you do business. For example, financial institutions that interact with personal investments have very different requirements than business-to-business financial companies. Because of this, it’s important to review the different screenings you should conduct for business vs. personal customers.
But whether you are working with an individual or an organization, you should remember that sanctions screenings are important because they’re in your best interest. Sanction screenings allow you to assess the risk of your potential business relationship with that individual or organization and prevent you from falling victim to a financial scandal. This can help you avoid issues related to financial crime (and the steep fines associated with them)!
Is Your Business Interacting with a PEP?
When you conduct sanction screenings on new accounts, one thing you are always looking for is politically exposed persons (PEP). This term refers to a specific group of individuals – political pr public figures and their associates and family members. Because of their position and influence, PEPs can be a potential risk for bribery, fraud, and other corruption.
How do you identify a PEP? There’s a screening process for that! Just follow these simple steps:
- When someone comes to open an account with your financial institution, start by running a PEP check on them. You can use PEP screening software to cross-check your potential new customer with both domestic and foreign PEPs.
- If your new customer appears on a PEP list, verify their identity right away. Use documents stating their date of birth, country of origin, and other identifying material to confirm that they are, in fact, a PEP.
- From here, you need to complete your due diligence on the individual. Check into their background for any illegal or suspicious activity. Get documentation from the person to verify where their money is coming from. Check with other institutions for any illegal activity perpetrated by the PEP. Use all this information to assess your business’s risk and determine whether you want to work with the individual.
- If you do decide to set up an account with a PEP, your screening process should not end here. After all, a PEP still has an increased risk of bribery, corruption, and other financial crimes. Pay special attention to their account and watch for suspicious activity. Similarly, conduct regular sanction screenings to see if any of your customers have had sanctions imposed against them.
This process may seem daunting – and we’ll admit, it is no small feat. But luckily, you can use screening software to automatically cross-check sanctions lists and streamline your screening process. Request info from ComplianceLine today to learn more about sanction screening software and find the right program for your business.