Introduction
Many companies carry out sanctions screening. At the same time, the term “PEP” comes up more and more often. Is a PEP list the same as a sanctions list? The answer is clear: no. Understanding the difference makes it easier to assess risks and to avoid false alarms.
What is a sanctions list?
A sanctions list contains individuals, companies or organisations against which national or international sanctions have been imposed. Sanctions can include asset freezes, payment bans, trade restrictions or travel bans. Relevant sources include SECO, OFAC, UK and UN; see SECO, OFAC, UK and UN.
What is a PEP?
PEP stands for “politically exposed person”. This can include members of government, parliamentarians, senior military officers, judges of supreme courts and senior executives of state-owned enterprises. Certain family members and close associates can also be relevant.
A PEP is not automatically suspicious. The status points to a potentially higher risk of corruption or money laundering.
The key difference
A sanctions list entry can trigger concrete legal restrictions. PEP status generally leads to enhanced due diligence and a more thorough risk assessment.
A practical example
A person listed on a UN sanctions list can trigger freezing or reporting consequences. A foreign member of government on a PEP list can, in principle, remain an acceptable customer but requires closer scrutiny and documentation.
Why companies need both checks
A person can be only a PEP, only sanctioned, both or neither. Each constellation calls for a different assessment. For sanctions screening itself, see What Is Sanctions Screening?
Why do false alarms occur?
Names alone are rarely unambiguous. Date of birth, nationality, address, function, company and alias names help to assess identical or similar names.
What to do in the event of a hit?
Document the hit, compare additional identifying details, assess the risk and record the decision in a traceable way.
Conclusion
PEP checks and sanctions screening serve different purposes. An effective compliance process distinguishes between the two categories and assesses possible matches on the basis of additional information.