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Big Data, PEPs and the fight against financial crime

Malcolm Wright

09 Nov 2017

Photographer: Peter Andrews

Politically exposed persons (PEPs) are defined by the Financial Action Task Force (FATF) as those entrusted with a prominent public function, such as heads of state, senior politicians or senior government officials.

PEPs’ access to state accounts and funds makes them more vulnerable to corruption and, as a result, they represent a higher risk to banks and regulators.

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That means financial institutions must carry out additional checks on PEPs and, in some cases, their family members.

There are a number of challenges around this, from differing definitions of PEPs to changing regulation, plus the fact that the vast majority offer little or no risk, making an intrusive or one-size-fits-all approach undesirable.

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Screenshot of Thomson Reuters World-check

Download report — Expert Talk: High-risk customers and PEPs: Maintaining a good customer experience while mitigating risk

A need for continuous monitoring

To identify PEPs and assess their risk status, information must be pulled from many public and private sources in different languages and formats, which vary from country to country.

Because a client’s PEP status can change, it is also necessary to put in place continuous monitoring.

This is an area where Big Data can play a significant role.

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Big Data offers answers to financial crime

As highlighted in the report Big Data – A Twenty-First Century Arms Race, published jointly by Thomson Reuters and The Atlantic Council, the data revolution is providing a new toolkit to combat financial crime by vastly increasing the amount and type of information that can be rapidly collected and analyzed.

Artificial intelligence can help to explore hidden relationships by automatically gathering information from internal databases and systems, internet-based sources and social media.

Not only can this help to avoid potentially high-risk relationships, it can make the compliance process more efficient and reduce the chances of harsh regulatory enforcement, financial penalties or reputational damage.

Inconsistent regulation creates loopholes

Progress will, however, also depend on regulators. As the report points out, at present many anti-money laundering (AML) national laws only include the obligation to identify international PEPs, not domestic ones, which represents a significant gap.

Photographer: Tiksa Negeri

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Historically, the focus has been on developing countries where protection was required against PEPs moving their proceeds of crime offshore into foreign banks.

By failing to consistently apply similar rules to domestic PEPs, regulators may be allowing corrupt officials to avoid detection by keeping their activities within national boundaries.

The requirements for PEPs to disclose income and asset regimes also varies from country to country, enabling corrupt PEPs to exploit differences in regulation.

Watch video — Thomson Reuters World-Check – Committed to helping global business fight financial crime

Information is key in fighting financial crime

Provided they have access to the right information, financial Institutions do not need to wait for regulators to close loopholes and they can carry out whatever level of checks they need to mitigate the risks of exposure to PEPs.

The challenge here is that public data from official sources can be difficult to obtain and the full picture is often not clear until all the pieces of the jigsaw are put together.

This is where Thomson Reuters World-Check can provide the answers.

Download report — Big data – A twenty-first century arms race

The World-Check database of PEPs and heightened risk individuals and organizations is used around the world to help to identify and manage financial, regulatory and reputational risk.

Thousands of links between subjects on official lists and associated business partners, legal entities and PEP family members can be uncovered through our global media research.

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