June 2024


The Pandora Papers highlight the importance of watchlists as part of KYC and AML efforts By Barley Laing, the UK Managing Director at Melissa

Barley Laing, UK Managing Director at Melissa

The Pandora Papers have focused attention on the sometimes questionable and corrupt practises of the politically connected and super wealthy.

They highlight how important it is for the public sector to have access to international sanctions lists or watchlists from governments and regulators of persons who are prohibited from certain activities and industries as part of their know your customer (KYC) and anti-money laundering (AML) checks. A key part of this is obtaining data on politically exposed persons (PEPs).

In the UK, organisations have a legal requirement to undertake enhanced checks of both domestic and foreign PEPs. Doing so helps public bodies to avoid the possibility of hefty fines and brand damage resulting from the negative publicity associated with having someone already known to the authorities fraudulently claiming benefits or other services.

It’s not easy to identify PEPs due to the lack of a universally agreed definition of what constitutes one. The Financial Action Taskforce (FATF) defines a PEP as ‘an individual who is or has been entrusted with a prominent public function’. They are typically heads of state, government ministers, MPs, senior members of the judiciary, those on the boards of state-owned companies and central banks, and senior civil servants.

It’s important to realise it’s not enough to identify PEPs, as their relatives or close associates (RCAs) may also be involved in abetting possible fraudulent behaviour, so they must be screened for too.

There are several best practices for sourcing watchlists that contain PEPs and their RCAs:

  • Obtain data from trusted global sources

To effectively screen watchlists use an automated tool that collects and synthesises data from a wide range of trusted sources worldwide, such as government, regulator and credit agency. One that also continually scans for updates. It will significantly streamline the screening process and ensure those with access to it are constantly updated on any changes to a user’s status.

  • Undertake adverse media checks

To remain up to date on any new information on the status of an existing PEP who maybe using your services, augment the standard PEP screening process with adverse media and negative news checks. Such a tool scans the global news media and sources the names mentioned in the likes of the Pandora Papers, as well as news on those with new sanctions against them and where there’s legal cases pending.

  • Take a risk-based approach to watchlist screening

With budgets stretched it’s important to take a risk-based approach to watchlist screening, particularly with PEPs and RCAs. Investment should be focused on implementing enhanced due diligence measures for high-ranking PEPs and their RCAs, including those in territories where there’s a greater prevalence of corruption.

  •  Continue to evaluate risk when a PEP leaves office

‘Once a PEP, always a PEP’. It’s a good attitude to have. While someone who has departed the political arena may not pose the same level of risk they once did, they still may continue to have some risk associated with them. Once a PEP leaves office, consider risk factors such as their time in the post, extent to which they are politically connected, their continuing degree of influence and their country’s level on a corruption index.

  •  Access an automated solution as part of a wider automated AML activity

An automated solution that identifies those on disparate watchlists, including PEPs and RCAs, in real time, works well as part of a more comprehensive automated approach to KYC and AML. Use electronic identity verification (eIDV) that can cross-check – in real time – the details provided by the user against reputable data streams to ensure they are who they say they are. Also, when onboarding, document scanning with optical character recognition (OCR) and machine readable zone (MRZ) technology should be used to enable public bodies to immediately determine the authenticity of the ID documents provided online.

The Pandora Papers underline why public bodies must obtain a comprehensive list which has access to high-quality watchlists, in particular PEPs, from governments and regulators worldwide – one that also continually scans for updates. The list should also have automated functionality so it can be easily used in conjunction with automated eIDV and document scanning technology for an accurate, fast, and cost-effective KYC and AML process.

For more information about Melissa and how our ID and document verification services can help you prevent fraud please visit: www.melissa.com/uk, email: barley.laing@melissa.com or call: 020 7718 0070.

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