PEP Screening – Unseen Force in Financial Defence
The amount of global money laundering can never be measured precisely. However, considering the momentum of crimes and money laundering existing around us, the money laundering estimations in Australia alone marked $2 billion.
As mandated by FATF many countries still face the challenge of effectively managing PEP screening in line with the risks associated with high-profile cases both within and across the border.
It would be no lie to say that most of the money laundering cases belong to high-profile individuals, whose rank and position give them the power to exploit its usage, thus committing acts of corruption and money laundering.
It’s true when they say “ Nearly all men can stand adversity, but if you want to test a man’s character, give him power”. The 2023 arrest and prosecution of FBI agent Special Agent Charles McGonigal, in response to accepting payments from foreign nationals, including sanctioned Russian oligarch Oleg Deripaska confirms all the preceding claims about high profile individuals, also known as Politically Exposed Persons (PEP).
This blog will shed light on the role of technology in making the PEP screening method an unseen force in financial defense.
Digital Technology: A Yes or No for PEP Check?
Money laundering has been an ongoing global problem. While financial institutions hope that technological advancement may combat laundering, transaction patterns, and the global nature of crimes take a 360-degree shift by becoming more obscure and hard to detect by PEP compliance programs.
In the ongoing investigation by the US Drug and Enforcement Action (DEA) investigation, Forbes highlighted money laundering worth $40 million through the world’s most famous crypto exchange Binance. A worldwide drug cartel carried out their unlawful funds through Binance using currencies including Bitcoin, Ether, Litecoin, Dogecoin, and Binance Coin.
With the rise of the digital economy, cases of corruption came rushing along. However, the research analysis of 2022 revealed, that with every 1% increase in technology measures, money laundering reduces by 0.15% in developed countries and 0.08% in developing countries fibahub.
Moreover, referring to the case of Dato’ Sri Mohd Najib, former Prime Minister of Malaysia, the federal court, declared him to be guilty against all seven charges related to 1Malaysia Development Berhad (1MDB) scandal. The question arises, how the case was decoded?
While the prosecution alleged that the accused had:
- Abused his power
- Breached trust
- Committed money laundering
The allegations were denied by the accused claiming the $42 million to be a donation sent by King Abdullah from Saudi Arabia. However, the transaction receipts from the bank revealed and played a crucial role in convicting the accused of all seven allegations against him, signifying the importance of technology in combating high-profile money laundering cases.
Conclusively, it’s a hopeful “Yes” to the use of digital technology in making PEP screening measure an unusual force.
What these technologies could be? How they can help effectively screen PEPs is discussed below.
4 Types of Innovative Technology in PEP Screening
Innovative PEP screening solutions are the new hype in AML screening measures. The key innovations include:
Artificial Intelligence/Machine Learning
These algorithms take away the hassle of screening large amounts of data. Drill down the manual screening challenges by automatically detecting anomalies and transaction patterns among PEPs. This technology helps combat alert fatigue by only flagging a case when a pattern has been detected.
Blockchain technology with its decentralized and immutable approach facilitates maximum transparency and traceability in the process of digital and traditional transactions making it complex for illicit actors to hide their transactions, thus detecting PEPs as an onoging AML screening strategy.
Processing large volumes of structured and unstructured data poses a challenge to the compliance team, especially when there are time constraints associated with PEP screening.
Integrating a consolidated screening solution helps screen through diverse datasets of sanctions, watchlists, PEP, and adverse media in one go without needless re-screening and overscreening.
Advanced Screening Measures
With technological advancements, screening mechanisms have taken a shift. By enabling biometric (name + image upload), fuzzy matching, sentiment analysis, and rule-based monitoring, handle aliases and look-alikes with the most precise and closest matched results with efficient PEP screening software.
To Sum It Up
Addressing challenges related to financial crime, money laundering, and corruption in the interconnected nature of crimes, requires a multidimensional and comprehensive approach to PEP list screening.
Ensuring compliance with regulated PEP screening method AML frameworks, and integrating innovative technology that is smart and intuitive enough to catch red flags is mandatory to maintain the gap between the aforementioned percentage of reduction in money laundering and an increase in technological advancement.