Why Sanctions Screening Is Important for Any Business

What are PEP and Sanctions Lists Screenings?

Organisations - —particularly in high-risk industries—are required to take stringent measures to identify, assess, and mitigate the risk of financial crimes. Two essential tools in this process are PEP (Politically Exposed Persons) screenings and Sanctions List screenings. These processes help businesses comply with global regulations, prevent reputational damage, and avoid inadvertently facilitating illegal or unethical activities such as money laundering, terrorist financing, or corruption.

Politically Exposed Persons, or PEPs, include the following individuals: those who hold or have held a position as the head of state or government, military officials, senior politicians, senior executives of government-owned corporations, or high-ranking political party officials. The list many times also includes family members and close business associates.

A PEP screening is a critical step in the Know your Customer process and allows a business to understand the risk potential of a customer. Since these individuals have public influence and oversight of government contracts, it is important to pay special attention to their ability to engage in corrupt activities.

A Sanctions List Screening is performed to ensure that a customer is not prohibited from certain activities or industries. The information is verified against multiple government watchlists and sanctions maintained by law enforcement agencies, regulators, and the UN. The goal of these sanctions is to prevent and detect illegal activities, terror financing, and any other activities considered to be a threat to national security.

An example is an Office of Foreign Assets Control (OFAC) check, which verifies someone is not forbidden from conducting business in the US (for example terrorist organizations, drug traffickers, or designated nationals). It also identifies entities that are subject to special requirements because they proliferate weapons of mass destruction.

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What Is a PEP Screening?

Politically Exposed Persons (PEPs) are individuals who currently hold, or have previously held, prominent public functions. These typically include:

• Heads of state or government
• Senior politicians and government officials
• Military leaders
• High-ranking members of political parties
• Executives of state-owned enterprises

Due to their public profile and influence over state resources, PEPs are considered high-risk clients. Their close associates—such as family members, business partners, and advisors—may also be included in PEP screenings, as they can serve as intermediaries in illicit financial transactions.

A PEP screening is a critical part of the Know Your Customer (KYC) process and helps businesses evaluate the potential risk of engaging with such individuals. While conducting business with a PEP is not prohibited, it requires enhanced due diligence measures to ensure that the business relationship is not exploited for illegal or unethical activities.

What Is a Sanctions List Screening?

A Sanctions List Screening checks whether an individual or entity appears on a government or international watchlist that restricts or prohibits business interactions. These lists are maintained by:

• National governments (e.g., the U.S. Office of Foreign Assets Control - OFAC)
• International bodies (e.g., United Nations, European Union)
• Regulatory agencies (e.g., Office of the Superintendent of Financial Institutions – OSFI in Canada)

These lists identify individuals and organizations linked to:

• Terrorism
• Drug trafficking
• Arms proliferation
• Human rights abuses
• Corrupt political regimes

An example is the OFAC’s Specially Designated Nationals (SDN) list. Individuals or entities on this list are prohibited from doing business in the United States. Violations can result in severe legal consequences, financial penalties, and reputational damage.

PEP and Sanctions Screening Requirements

Sanctions and PEP screenings are mandatory for regulated industries such as:

• Financial institutions (e.g., banks, money service businesses)
• Insurance companies
• Law firms and real estate agencies
• Cryptocurrency exchanges
• Investment firms

These businesses must:

• Conduct PEP and sanctions screenings during customer onboarding
• Perform ongoing monitoring to detect changes in status
• Report suspicious activity and apply enhanced due diligence where required

International regulatory bodies, such as the Financial Action Task Force (FATF), recommend regular reviews of the entire customer base to ensure continuous compliance. Regulatory expectations vary by jurisdiction, but the overarching goal remains consistent: prevent the misuse of financial systems for criminal purposes.

For instance:

• In the U.S., the Patriot Act requires checking customers against OFAC’s SDN and other watchlists.
• In Canada, OSFI provides guidance on sanctions compliance and publishes its own lists.
• In the EU, the EU Commission mandates enhanced due diligence for clients from high-risk third countries.

Failure to comply can lead to heavy fines. A notable example is BNP Paribas, which was fined $9 billion in 2014 for violating U.S. sanctions.

Business Benefits of Sanctions and PEP Screenings

Aside from meeting legal requirements, implementing robust sanctions and PEP screenings provides multiple business benefits:

• Mitigates risk exposure by identifying high-risk clients early
• Protects brand reputation and demonstrates regulatory integrity
• Prevents costly fines and compliance breaches
• Facilitates faster audits with clear documentation
• Enables smarter onboarding with risk-based decision-making

However, managing these checks manually can be complex and time-consuming. Businesses face challenges such as:

• Large volumes of data and watchlists
• False positives due to similar names or aliases
• Language and jurisdictional differences
• Ongoing monitoring requirements

This is where automated solutions become invaluable.

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Choosing a PEP and Sanctions Screening Solution

When selecting a screening tool, it’s crucial to consider:

• Coverage: Does it include all relevant global and regional lists?
• Data quality: Are sources reputable and frequently updated?
• Match accuracy: Does it use advanced algorithms to reduce false positives?
• Automation: Can it support continuous monitoring and trigger alerts?
• Customization: Can it be tailored to your firm’s specific risk profile?

The right solution can significantly reduce compliance overhead while increasing confidence in customer risk assessments.

Why sanctions.io Is a Great Fit for Your Screening Process

sanctions.io offers a powerful and user-friendly platform to help you meet your compliance obligations with confidence:

• Real-time updates: Our sanctions database is refreshed every 15 minutes to ensure you’re working with the latest data.
• Comprehensive coverage: Includes OFAC, the UN, the EU, and other critical global sanctions lists.
• Advanced algorithm: Proprietary search technology minimizes false positives while maximizing detection accuracy.
• High-quality PEP data: 95% of our PEP data is manually sourced from official national and regional election records, and includes close associates and family members.
• Ongoing improvements: We’re continuously expanding our data sources and refining our platform to ensure it stays ahead of global compliance trends.

Whether you're onboarding a new client or reviewing your existing portfolio, sanctions.io gives you the confidence that your screening process is compliant, accurate, and efficient.

Ready to protect your business from risk and ensure compliance?
Visit sanctions.io or contact our team to learn more about how we can support your compliance journey.