Mastering PEP Compliance: Leveraging technology for vendor screening

In the ever-evolving global marketplace, businesses are increasingly reliant on third parties to deliver their products and services. This interdependence has been met with a surge in regulatory requirements, most notably in industries such as Financial Services.

The evolution of regulations such as the Politically Exposed Persons (PEP) regulation and the broader Anti-Money Laundering (AML) laws has occurred due to:

• Increasing sophistication of financial crime via new technologies such as digital currencies
• Evolving globalisation which can create weak links if cross-border transactions aren't regulated
• Political changes which can see an individual or party use their influence for personal gain
• Global events such as 9/11 which created a focus on preventing any potential terrorist financing
• Increasing customer demands for businesses to operate with transparency, integrity, and good ethics.

If your business relies on third parties for its services and general operational success, it means you need to start building strategies around risk management, regulatory compliance, and maintaining a reputable and legitimate business environment.

In this article, we’ll take a look at what PEP and AML mean for your business and how Gatekeeper can help you to safeguard compliance.

What Are PEP and Sanctions?

PEP is Politically Exposed Persons, a term given to individuals who have been entrusted with a prominent public function. This often includes senior politicians, judicial or military officials, senior executives of state-owned corporations, and important political party officials.

Due to their position, PEPs are considered a higher risk for potential involvement in bribery and corruption.

Sanctions are penalties imposed by one country onto another, an organisation, or an individual as a means of achieving political or social objectives. These can range from trade barriers and tariffs to asset freezes and travel bans. Non-compliance can lead to severe penalties, both financial and reputational.

The consequences of non-compliance 

When non-compliance with PEP or AML regulations extends throughout your supply chain, the consequences can be extensive.

Your supply chain - being the network of all entities involved in producing and delivering products or services (including fourth parties) - increases the potential risk for non-compliance if left unmonitored.

Consequences of non-compliance found within your business and throughout its supply chain include: 

• Direct financial penalties that can hurt your business's bottom line
• Reputational damage which can cause mistrust with associated entities
• Operational disruptions as a result of delays caused by any litigation cases
• Loss of business if contract breaches result in termination
• Remedial costs such as audits, system overhauls, and potential compensation.

Why you should screen your vendors

According to Creditsafe, there is a 30-40% increase every year in the PEPs list alone. Screening your existing vendors, along with any new ones, is essential for safeguarding your business and protecting it from significant risks.

Take, for example, the case of Deutsche Bank agreeing to pay more than $130 million to settle allegations that it had violated anti-bribery laws and engaged in commodities fraud. The bank was said to have failed in its AML obligations, including those related to PEPs.

Screening your vendors for financial risks relating to AML and PEP doesn’t just help you to avoid the costly consequences listed above. It also helps your business to:

• Build trust: Demonstrating that you screen for compliance underscores your commitment to ethical and transparent business practices. This enhances trust between you, your partners, customers, and stakeholders.
• Ensure integrity: By associating only with vendors who adhere to legal and ethical standards, you enhance the overall integrity and reputation of your business.
• Streamline business operations: Having a system in place to screen vendors means a more efficient and organised onboarding process. It helps in making more informed decisions about which vendors to collaborate with.
• Build a positive brand image: In an age where corporate responsibility and ethics are under the spotlight, maintaining compliance and screening vendors can boost your brand image, making it more appealing to conscious consumers and partners.
• Achieve long-term stability: Compliance screening contributes to the long-term stability of the business. It ensures that the company is not building its foundations on partnerships that might be jeopardized by non-compliance.
• Create competitive advantage: In some industries, a strong compliance record can be a selling point, offering a competitive edge over businesses that might be more lax in their vendor screening processes.

How does Gatekeeper Protect your business?

Gatekeeper's Market IQ Suite has been designed to support your third-party risk management. Its recent expansion - Market IQ Screen - is integrated with Creditsafe Protect.

This tool is powered by data from the LexisNexis WorldCompliance database, a robust and continually updated source of international ID verification and AML screening data.

The software automatically screens multiple data sources, reducing manual effort and associated costs. This feature ensures robust and efficient compliance with evolving PEP and sanctions lists, helping your business mitigate potential regulatory and reputational risks.

With the ability to bulk import a list of companies or individuals, you can screen multiple vendors at once.

Using MarketIQ Screen also helps in fostering long-term business relationships with reliable partners.

By demonstrating robust compliance procedures, businesses can cultivate trust among their customers and vendors - crucial for sustainable growth as well as for audit-readiness.

Market IQ Screen, as part of the Market IQ Suite, delivers multiple benefits including:

• Robust safeguards: It defends businesses from regulatory penalties and reputational risks by allowing them to be proactive instead of reactive.
• Automated intelligence: The tool automates screening across multiple sources via 24/7 risk intelligence feeds, cutting down manual efforts and costs.
• Cultivating trust: It enables businesses to nurture long-term, trustworthy relationships with credible partners.
• Data-driven decision-making: Comprehensive insights equip your business to make informed commercial choices based on the total number of compliance alerts, company-level alerts, individual alerts and holding company alerts.

Wrap Up

As the regulatory landscape becomes increasingly complex, solutions like Market IQ Screen are indispensable. They provide businesses with the tools they need to navigate the challenges associated with vendor compliance, particularly in regard to PEP and sanctions.

By integrating Market IQ Screen, your business can safeguard against potential regulatory penalties, reduce manual screening costs, and foster a reputation built on trust and adherence to ethical standards.

Staying ahead of PEP and AML compliance not only keeps you on the right side of the law but also allows your business to leverage a competitive edge and drive confident business growth. If you’re ready to safeguard compliance throughout your business, book a demo today.