For companies to maintain an effective risk assessment process, they must keep up-to-date with the constantly changing sanctions lists from organisations such as the UN and EU, including any new entries or expungement.

Financial sanctions are legal restrictions, put in place by the government to limit or prevent entirely the trading of individuals, companies or whole countries. They are usually levied against people or corporations who have committed financial crimes and fall into one of three categories: the freezing of assets, specific restrictions on financial markets and orders to cease all trading.

Used by financial authorities and governments all over the world, sanctions lists are databases which detail all the financial sanctions that are currently active in a specific state, country or continent. Some of the most well-known examples in the industry are the United Nations list, the UK Consolidated list and the EU Consolidated list.

The UK Consolidated List, which is the most widely used official list of financial sanctions in the UK, details three types of sanctions. These are the following: targeted asset freezes, financial restrictions and directions to cease all business. Every country is legally obliged to adhere to any financial sanctions levied against it if it’s enforced by the relevant authorities (for example, the Office of Financial Sanctions Implementation in the UK).

Every country is legally obliged to adhere to any financial sanctions levied against it if it’s enforced by the relevant authorities (for example, the Office of Financial Sanctions Implementation in the UK).

If you fail to include a Sanctions search when carrying out your AML checks, you could end up unwittingly entering into business with a client or customer who is currently sanctioned. In the UK, having dealings with any sanctioned business or individual is illegal if those dealings break the terms of the arrangement, except in very specific circumstances when a licence is required. If you’re found out, the consequences can include substantial fines or even a prison sentence, as it’s considered an AML compliance failure.

Regardless of the circumstances, when collaborating with others, you must not partner with anyone who is sanctioned by the government. This includes their close family members and associates.

A PEP (Politically Exposed Person) check should be carried out when onboarding new customers to ensure that they are not linked to any form of financial crime. For example, if a customer is a government official or a family member of a government official, it is important to conduct a PEP check as such individuals may be involved in bribery or corruption. Additionally, a PEP check should be performed whenever changes are made that could trigger the need for additional verification. This could include changes in address, profession, or banking details which may indicate potential money laundering activity.

Organisations can legally provide services/products or choose to work with PEPs; it is their responsibility, however, to manage the risk associated with doing so. Regulated industries, especially those in the finance sector, are required to conduct PEP checks and sanctions screening as part of their Customer Due Diligence (CDD) during onboarding. After conducting their checks, they may require further verification before making a decision on whether or not to accept the customer. CDD steps are just a part of the Know Your Customer process. Failing to abide by the nation's AML protocols can result in financial penalties and even jail time.

The time frame a person is deemed to be a PEP may vary depending on their particular function, with designation potentially lasting up to a year after their official departure. To guarantee adherence and surveillance, a thorough assessment must be conducted into the individual and their prior connections before PEP status is cleared from them.

When onboarding a Politically Exposed Person according to Regulation 35 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017), you must: Secure approval from upper management for the business association. Ensure the origin of assets and funding is adequately investigated. Keep a close eye on the business relationship over time. Regulated businesses must ensure they meet KYC and AML regulations by performing PEPs and sanctions checks as part of their due diligence process.

RCA stands for Relatives and Close Associates, defined as any individuals or businesses that are either related to or closely associated with a PEP. It’s important to identify RCAs as they may be vulnerable to bribery, blackmail and corruption due to their relationship with someone in a position of authority and influence.