What are Sanctions and Sanctions Due Diligence Checks?
“Sanction” is a broad term that refers to penalties imposed upon an individual, entity or country as punishment. Typically, sanctions will be imposed for reasons such as the violation of internationally acclaimed standards, the abuse of human rights, or the infringement of the laws to protect the legal financial system. However, sanctions may also be imposed for a wide variety of political, social and economic reasons.
Sanctions are a punishment because they impose legal restrictions on what the implicated individual/entity can or cannot do. Sanctions also govern and restrict how other parties may interact with the sanctioned individual/entity.
The violation of sanctions is associated with strict financial and legal penalties, both for the sanctioned individual/entity and those who breach sanctions by interacting with the sanctioned individual/entity in prohibited ways. It is therefore essential to ensure that an individual/entity is not under sanction before doing business with them.
To avoid breaking international law and doing business with a sanctioned country, business or individual, one must check the sanction status of a client or business partner before doing business with them. These checks are known as sanctions checks and fall under the concept of due diligence.
What are Politically Exposed Persons (PEPs) and PEP Checks?
Broadly, the concept of a PEP refers to individuals who currently hold or have held political power. Due to the interwoven nature of politics and private capital, governments and financial institutions worldwide agree that PEPs represent an increased money-laundering risk. This is because individuals who hold political power can abuse their power to engage in money laundering and other financial crimes like corruption, bribery, embezzlement and the financing of terrorism.
The identification of an individual as a PEP does not make them a criminal or implicate them in any wrongdoing. Instead, the identification of an individual as a PEP ensures that the PEP is more closely analysed for suspicious behaviour – an analysis that is done through enhanced due diligence protocols. This requirement for additional due diligence is designed to make it harder for PEPs to abuse their power and engage in corruption.
The laws and regulations regarding PEPs have serious implications for businesses, which are typically required by law to conduct due diligence on a client before any relations are formed and before any business is conducted. Failure to comply with these laws can lead to serious regulatory punishment.
Why Ongoing Monitoring for AML is So Important
Ongoing monitoring is important because international sanctions lists are constantly being revised, with new countries, businesses and individuals being added and removed every single day. A squeaky-clean business partner can become a legal liability to your company overnight.
PEP lists also constantly change. Events such as political elections, cabinet reshuffles, and even high-profile weddings mean that someone can suddenly become a PEP, even when they have no prior history of being one.
When this happens, it is still the responsibility of a bank or other such company to establish if that person is a PEP.
This is where ongoing monitoring becomes so important.
Ongoing monitoring constantly checks a list of names against sanctions and PEP lists across the world. This means that if someone suddenly becomes a PEP or gets sanctioned, your business will immediately be alerted to this change.
This immediate alert empowers your business to take immediate action and ensure continued regulatory compliance.
In our rapidly changing and global economy, it is essential to adopt automated systems that can easily and consistently ensure you remain legally compliant with AML laws.
Ongoing Monitoring Services for South Africa
As South Africa’s leading provider of world-class identity verification, data validation and due diligence solutions, ThisIsMe is proud to be at the forefront of a trust-based and privacy-compliant digital world. To experience our full suite of solutions and experience how we can help your business meet its regulatory compliance obligations, book a demonstration by contacting our team here.
