Here we take a look at what the requirements are, and why it’s crucial for you to be carrying out PEP & Sanction checks correctly.
What is a PEP check/ PEP screening?
PEP stands for a ‘’Politically exposed person’’. Being a politically exposed person, increases the potential power and influence a person may have and, could make them more susceptible to bribery, corruption and blackmail. Prominent public positions which are classified as a PEP may include but are not limited to; government ministers, senior government executives, high ranking judges, high ranking military officers or board members and executives of an international organisation.
The Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML CFT Act 2009) obliges reporting entities to ensure that any customer or beneficial owner of a customer classified as a PEP is identified so that appropriate customer due diligence can be carried out. The definition of a PEP applies not only to the person themselves but also includes related family, partners and some business relationships;
Part 26 of the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2009, sets out the requirements of the collection and verification of politically exposed person information.
(Further details can be found here).
Conducting PEP checks allows you to confirm whether you are engaging in business activity with a customer or beneficial owner that is politically exposed or linked to a politically exposed person.
What is a Sanction check/ Sanction screening?
NZ businesses have obligations in regulations made under the United Nations Act 1946 to ensure they are not doing business with sanctioned countries, people or companies.
Sanction checks assess an entity or individual to determine whether a particular person or entity is on a government watchlists, for example for threatening peace or non-cooperation with international law, and if so the extent of any restrictions against dealing with that person that may apply.
Sanction checks are vital in preventing businesses from mistakenly working with organisations or individuals that conduct, have links and/or fund sources associated with financing of terrorism or are on a government sanction list in any country, worldwide.
Are we obligated to do PEP & Sanction Screening?
PEP & Sanction screening is a requirement. AML CFT Regulators (RBNZ, DIA, FMA), can undertake enforcement action (including imposing fines) for businesses who fail to comply with meeting the AML /CFT Act set requirements, such as the required level of background checks and appropriate approval of PEPs. It is also required that you report on anyone who is a politically exposed person (except for NZ PEP’s) in your AML/CFT Annual Report.
In addition, a breach of sanctions legislation is a criminal offence.
Wouldn’t I know if my client was "dodgy" or conducting illegal activity through my business?
No, not necessarily. Most illegal behaviour is conducted through legal businesses and through trusted relationships with the intention of going unnoticed, so it’s likely that you won’t realise this behaviour is being conducted, making it vital to carry out PEP checks, sanctions checks and ongoing CDD (customer due diligence) to catch it if / when it does occur.
What does this mean for your business?
Different factors, including your industry, business activity and company size will all affect how essential PEP & sanction checks are to your business. Certain industries can be more subject to illegal business activities than others and therefore at a greater risk. This doesn’t mean you aren’t required to carry out PEP & sanction checks, but simply you could be at more or less at risk than other industries.
Why use an electronic identity verification provider to conduct PEP & Sanctions checks?
The vast number of sanctions watchlists and parties listed on them makes it challenging to adequately conduct searches manually. Likewise identifying all the person(s) that fall into the definition of a PEP (not only the individual but also their related family, partners and business relationships) and conducting searches on all these people manually is onerous and time consuming, and therefore costly. Electronic identity verification providers allow you to easily conduct these searches and return up-to-date results back either as a separate check or as part of the identity verification check. In the long run this is far more accurate, ensuring better compliance with the legal requirements, and cost effective.
If you would like any more information on how you can easily carry out PEP & Sanction checks on your clients, contact us today by emailing or calling (NZ) 0800 283 743, (AUS) 1300 849 290. Or sign up for a Two-week Free Trial.