Human trafficking is a humanitarian crime and a significant money laundering predicate offence. In 2020, the International Labor Organization (ILO) estimated that human trafficking crimes had generated around $150 billion in profits, with 25 million victims. In response to the serious emotional and physical damage that human trafficking inflicts on individuals and communities, governments worldwide are introducing measures to detect and prevent it, along with financial regulations to identify, freeze, and confiscate the illegal profits that it generates.
Financial institutions have an important role to play in the fight against human trafficking. By targeting the illegal money that it generates, governments are hoping to engage financial institutions in the global fight against people traffickers, identifying individual perpetrators and reducing the opportunities for criminal organisations to exploit vulnerable people for profit. With that in mind, it is crucial that financial institutions understand their human trafficking regulatory responsibilities, and how to implement suitable anti-money laundering (AML) and counter financing of terrorism (CFT) measures.
What is human trafficking?
Human trafficking, sometimes referred to as migrant smuggling, is broadly defined as the criminal movement of people for exploitation. Victims of illegal trafficking include men, women, and children, who may be recruited or coerced to leave their homes and then forced into work or prostitution upon reaching their destination. Interpol defines the following categories of human trafficking:
Forced Labour
Victims are often coerced into extremely low paying jobs with poor health and safety conditions – or even into modern slavery. Forced labour jobs are often held in the agricultural, mining, fishing, and construction industries.
Forced Criminal Activity
Many migrant smuggling victims are forced to carry out crimes on behalf of third parties, including the selling of counterfeit items, begging, and drug cultivation.
Sexual Exploitation
Many victims are exploited sexually. This form of people trafficking tends to involve female and child victims who are forced into prostitution.
Organ Harvesting
Criminals may exploit the desperation of patients and donors to smuggle migrants across borders for the purposes of organ donation, with medical procedures often taking place in unsuitable and dangerous conditions.
How are human trafficking and money laundering linked?
Human trafficking is considered one of the most profitable criminal enterprises in the world, with the potential to generate significant ongoing profits for its perpetrators. As victims are forced into work, the money that they generate must be disguised before it can be introduced into the legitimate financial system. With those factors in mind, human trafficking qualifies as a money laundering predicate offence – which means that it is a criminal offence which necessitates money laundering as a subsequent, connected criminal offence.
Accordingly, most governments implement AML screening requirements in domestic legislation to deal with human trafficking as a predicate offence. For example, in the European Union, the Sixth Anti-Money Laundering Directive (6AMLD) includes it as part of its harmonised list of money laundering predicate offences. Under 6AMLD, all EU member states must treat human trafficking as a money laundering predicate offence and mandate suitable AML compliance regulations against it.
In order to comply with 6AMLD, and other global anti-money laundering regulations, financial institutions must understand how criminals attempt to launder migrant smuggling profits. With that in mind, the following types of financial activity are useful indicators that a customer may be involved in human trafficking:
- Front companies: Criminals may establish a business to disguise money derived from migrant smuggling. Common ‘front company’ examples include restaurants, bars, salons, and massage parlours.
- Funnelling: Accounts associated with human trafficking may receive payments from multiple sources in amounts just under reporting thresholds. Those funds are then immediately removed or sent to another account.
- Alternative payments: Many human trafficking payments are made via alternative payment systems including prepaid credit cards, cryptocurrencies, and mobile deposits. Alternative payment methods often serve to conceal the identity of parties involved in transactions.
- Financial behaviour: Unusual or unexpected financial behaviour may be indicative of customers attempting to launder human trafficking profits. Examples include unusual frequencies of transactions, transactions in unusually high amounts, or transactions involving high risk AML jurisdictions.
- Shared accounts: Victims of migrant smuggling may be forced to share bank accounts, or share email addresses and phone numbers.
- Transaction times: Many transactions associated with human trafficking tend to take place between 10pm and 6am.
- Transaction locations: Transactions that take place in areas located a long distance from the residences of account holders or in busy public transport hubs.
- Accommodation payments: Human traffickers may pay for hotels, apartments, and other lodgings near known migrant smuggling routes such as ports or large urban areas.
- Money remittance payments: Unusually high use of money remittance services or online payment services to a country of prior residence with no logical explanation.
Human trafficking AML screening
In order to detect attempts to launder the profits of human trafficking, financial institutions must screen their customers at onboarding and throughout the business relationship. Following Financial Action Task Force (FATF) guidance, firms may take a risk-based approach to screening, deploying more intensive screening measures for customers that pose a greater AML risk.
Accordingly, an effective human trafficking AML screening solution should include the following measures:
Adverse Media
Many criminal activities are uncovered by journalists and revealed in news media before official confirmation by authorities. Companies should seek to screen their customers for involvement in adverse media stories that involve human trafficking. Adverse media solutions should cover a range of global media sources and be able to match names across different languages and naming systems.
Watchlists
As a result of their criminal activities, human traffickers often appear on global sanctions lists and watchlists. With that in mind, companies should implement a robust sanctions and watchlist screening process to match customers on sanctions lists and watchlists as soon as they are designated.
Transaction Screening
Many indicators of human trafficking are associated with transactional activity. Accordingly, companies should screen transactions for those indicators, verifying customer identities, matching names to watchlists, and identifying relevant risks in order to capture potential compliance issues.
Human trafficking AML best practices
Stopping criminals laundering the proceeds of human trafficking requires the collection and analysis of a huge amount of data. In practice, financial institutions must integrate an effective software solution to meet their regulatory responsibilities, capable of screening customers quickly and efficiently, and managing the challenges of cross-border compliance, including name-matching across different language systems.
With that in mind, screening solutions for AML should prioritise the following factors:
Sharing of Information
Financial institutions should share information pertinent to human trafficking risk. Some jurisdictions, such as the UK, mandate information sharing as part of their domestic AML/CFT legislation. The FATF has released a guide to private sector information sharing, setting out recommendations for how financial institutions might share customer information, and what information is pertinent to share for AML/CFT purposes.
Information sharing not only helps financial institutions to combat global human trafficking but increases the collective accuracy of screening measures.
Customer Identities
Effective customer screening should be built into the Know Your Customer (KYC) process. Financial institutions must establish and verify the identities of their customers in order to understand their financial activity and match their names accurately to watchlists or adverse media. In contexts where customers engage with financial services online, financial institutions should use digital identifiers such as dual factor authentication.
Depth of Information
People trafficking can be difficult to spot because of its similarity to normal, legal financial activities. To discern human trafficking activity with sufficient accuracy, financial institutions should seek to add depth to their data collection processes with automation. In addition to speed, efficiency, and accuracy, automated data collection and analysis enables firms to enrich their KYC data with peripheral identifying information and move faster to address compliance alerts as they emerge.
Get in touch to learn more about how Ripjar can help you with AML screening
Cryptocurrencies are disrupting financial systems for consumers and businesses alike, with crypto exchanges facilitating transactions between users in jurisdictions worldwide. However, the innovation that has driven the global rise of cryptocurrency has also introduced new risks as criminals exploit the speed and anonymity of cryptographic technology to evade regulatory controls and commit financial crimes such as money laundering and terrorism financing.
Recent geopolitical events have increased the need for crypto exchanges to implement robust anti-money laundering (AML) and counter-financing of terrorism (CFT) screening solutions. Following the Russian invasion of Ukraine on 24 February 2022, Western governments introduced an unprecedented package of economic sanctions against Vladimir Putin’s regime, with severe fines for firms found to be in violation of regulations. The sanctions apply to firms across the financial landscape, including cryptocurrency service providers.
Given the potential for cryptocurrencies to be used to commit cross-border financial crimes, not least the evasion of sanctions, crypto exchanges should understand the importance of AML/CFT client screening as part of their compliance solution, and ensure that they are capable of spotting high risk customers quickly and efficiently.
Crypto Exchange Risks
While traditional financial systems require customers to provide identifying information in order to access products and services, cryptocurrency transactions offer increased levels of anonymity which may enable criminals to evade AML/CFT controls and bypass sanctions. As platforms that facilitate cryptocurrency transactions, crypto exchanges face the following criminal risks:
Customer Identities
Since cryptocurrency transactions take place online, users may be able to conceal their identities and evade certain customer due diligence controls. Blockchain technologies also enable criminals to integrate mixing and tumbler services to add further anonymity to their financial activity.
Speed
Cryptocurrency transactions take place in seconds, enabling money launderers to move money quickly between accounts in different parts of the world, before extracting it and introducing it into legitimate financial systems.
Structuring
Crypto exchange users may be able to create multiple accounts within the same platform or with different service providers and structure their transactions in a way that does not trigger AML/CFT controls.
Money Mules
Criminals may coerce or incentivise third parties to set up accounts with crypto exchanges. These ‘money mules’ then perform transactions on behalf of money launderers.
Customer Screening Considerations
The inherent risks of cryptocurrency transactions mean that crypto exchanges should seek to establish the identities of their customers and understand their financial activity. Financial Action Task Force (FATF) AML/CFT guidance requires financial service providers to perform Know Your Customer (KYC) checks to determine the risk that individual customers present – at onboarding and throughout the business relationship. With that in mind, crypto exchanges should implement the following screening processes:
Sanctions Screening
Crypto exchanges must screen their customers against the relevant international sanctions and watch lists, including the UK sanctions list, the OFAC sanctions list, and the UNSC sanctions list. In addition, firms should pay special attention to recently updated Russia sanctions programmes.
Politically Exposed Persons
Elected officials, government employees, and members of the military present a greater AML/CFT risk and may be considered politically exposed persons (PEPs). Accordingly, crypto exchanges should screen to establish whether their customers are PEPs and adjust their risk profiles accordingly.
Adverse Media
Changes to customer risk profiles are often revealed in the news media before any confirmation by official sources. With that in mind, it’s important that crypto exchanges deploy adverse media screening measures to detect customer involvement in breaking news stories. In addition, adverse media solutions should cover media in a range of languages and consider nuances such as source credibility and political bias.
Screening Best Practices
To effectively address the risks that cryptocurrency transactions present, crypto exchanges should seek to make their screening process as efficient as possible, minimising false positives without missing genuine AML/CFT alerts. Accordingly, crypto exchanges should build their screening processes around a series of best practices, including:
Updates
Crypto exchanges must ensure that the resources they use to screen customer names are updated and accurate. The sanctions landscape can change rapidly so exchanges must ensure they are using the latest versions of sanctions and PEP lists, and checking media sources regularly for breaking stories.
Due Diligence
Crypto exchanges should perform suitable due diligence when onboarding customers, to establish their identities and the nature of their financial activity. Ideally, firms should use digital verification techniques to address the anonymity challenges of the blockchain. This includes dual-factor authentication and biometric identification such as fingerprint, voice, and face scans. In some cases, high risk customers should also be subject to enhanced due diligence (EDD).
Naming Conventions
Since they serve customers from territories worldwide, crypto exchanges must be prepared to deal with a diversity of language systems when screening customers. Ideally, screening measures should be set up to deal with non-Latinate characters such as Arabic or Cyrillic, and to detect regional naming conventions such as the reversal of first names and surnames that occurs in many cultures.
Aliases and Nicknames
Customers may engage with cryptocurrency services using nicknames or aliases, which may confuse name-matching software. Crypto exchanges should work to capture aliases and nicknames as part of the KYC process to better detect positive hits when screening against sanctions lists, PEP lists, and adverse media.
Russia Sanctions: Compliance Update
In response to Russia’s invasion of Ukraine, many Western governments updated their sanctions guidance for cryptocurrency service providers. The UK government has emphasised that crypto exchanges have the same regulatory responsibilities as other financial institutions. On 11 March 2022, the UK’s Financial Conduct Authority, Office of Foreign Sanctions Implementation, and Bank of England issued a joint statement reminding UK cryptoasset firms of their obligation to contribute to the sanctions compliance effort.
The statement encourages crypto exchanges to:
- Update their sanctions compliance controls and technology, including enhancing their blockchain analytics to identify high risk wallets.
- Be aware of sanctions red flags, including high risk jurisdictions, sanctioned wallet addresses, and exchanges with poor financial controls.
- Be aware of cryptocurrency crime methodologies, such as the use of VPNs, and mixing and tumbling services.
Screening Technology
Screening customers against sanctions lists, PEP lists and adverse media sources requires crypto exchanges to monitor a vast amount of data. This means implementing screening software that delivers a high degree of adherence to global sanctions lists and PEP lists, and ongoing monitoring of news outlets.
Ripjar’s next generation screening solution is capable of matching names across a spectrum of languages and character sets while maximising true positives and minimising false positives. Similarly, our adverse media technology adds depth to your screening by conducting continuous monitoring of global news stories in over 21 languages, to capture customer risk data as soon as a story breaks.
Get in touch to discover how Ripjar’s advanced technology can help your company build a significant commercial advantage.
Female Role Models in Tech
The tech industry has a problem. With only 5% of women in leadership roles, there’s a real lack of female role models. There are of course some great counter examples out there, but not enough. How many famous men in tech can you name? And how many women?
At Ripjar, we’re not immune to the industry trend. We know there’s still more we can do to build a more gender-balanced workplace, and it’s something we’re working hard on. In the last 12 months, with a number of focussed initiatives in place, we’ve seen improvements, and addressing the balance remains an important goal for us as a company.
Stepping into the (Gender) Gap
To celebrate International Women’s Day, we were hoping to write about some of our female members of staff and the professional role models they’ve worked with who are women. Unfortunately, we quickly found that it was difficult for many of the team to think of any examples. In fact, we discovered that some of our female team have never worked alongside women leaders or direct colleagues in their previous roles.
So we decided to turn our idea on its head.
We interviewed three members of the Ripjar team about their roles and asked what advice they’d give to girls or other women looking to work in their chosen careers. Meet your new role models: Kate, Cece, and Beth.
Kate Brewer – Head of User Success
What does your role involve?
My role involves making sure that users know how to get the most value and best experience from our software.
What’s the best thing about your job?
I love learning about the exciting developments coming from data science, and how they keep finding new ways to solve real world problems. I also get a lot of satisfaction from knowing I made someone’s day better when I showed them how they could use our tech to remove a pain point they had been experiencing in their job.
What’s your top tip for women entering the world of tech?
It’s unfortunately still the case that sometimes your opinion won’t, by default, be taken as seriously as that of the men around you. In addition, women have often been taught to be cautious, and carefully caveat their thoughts. You need to speak with at least as much confidence as you feel, as you can be sure that other people are!
What advice do you wish you’d received when first starting out in your career?
There is very rarely a ‘right’ way to do things and you have a lot more flexibility than you think in how you do your job. If you have an idea that you think is good, or a way of doing things that gets good results for you, go for it with confidence and everyone will accept and appreciate it.
Cece Wisniewska – Software Engineer
What’s your job in a nutshell?
I’m a software engineer, which involves me using a range of technologies to develop features to meet customer requirements.
What’s it like being a Software Engineer at Ripjar?
I’ve not been working here long but I already feel like I’ve settled well into the small development team I’m in. I had a big learning curve when I joined because the tech stack used in my current role is completely different from what I’ve used in previous jobs. However, I believe that if you have a passion for technology and are open to learning new things, then this is not a hurdle necessarily, but an opportunity to challenge yourself and to learn with a fresh mind from people who are highly skilled in those areas that are new to you. I’ve experienced this so far in my role at Ripjar – everyone is willing to help out and I feel like I’ve learned a lot from others on my team already!
Who do you look up to in the tech industry?
One of my role models is Joy Buolamwini who is both a computer scientist and a digital activist. Her work involves identifying bias in algorithms and developing practices for accountability during their design – she coined the term “coded gaze” to refer to this bias in coding algorithms. This was an aspect of AI I was unaware of until I watched her TED talk on it. I think it’s inspiring how Joy has made such an impact so early on in her career by bringing to light a previously overlooked, but undoubtedly important aspect of AI.
What advice would you give to girls or women interested in software engineering as a career?
I remember when entering the world of work I was shocked at how few women there were in software engineering and other tech based roles. I came to realise that as women we should not feel discouraged to pursue a career in tech just because we are a minority. In fact, this should motivate us more because we are shifting the statistic, and we have the potential to inspire other women to do the same.
Beth Shaw – Head of Support
What does your job involve?
My job is to lead the Support offering for our Labyrinth Screening product. My main responsibility is to make sure we can respond to customer issues within agreed contractual service level agreements and that our customer relationship benefits as a result.
What do you enjoy about your job?
I love the fact that I can solve customer issues by bridging the gap between engineering and customers for production questions and issues. It’s especially rewarding to me to see the reduction of impact on the engineering team, which helps them focus on new development and therefore new growth in our product. I also really love being close to the technology and having a good knowledge of our product.
Have you faced any challenges in your career?
The main challenge I faced is when I stopped to have a child. I was a developer previously in my career. Being away from the technology made it very hard to jump back in and start where I left off. I found this very frustrating, and in the end, I moved away from development and into technical management roles. I don’t regret these decisions; they are just a change in trajectory for my career and I felt I could be more effective given the experiences I had had over my career. My advice for other women would be to not always expect to do the same thing over your entire career. You will find your greatest strengths and should not be afraid to employ them more directly.
How would you increase the number of women in tech?
Certainly, females can succeed in technical careers, and I’ve seen many successful women in technical roles throughout my career. I would like to see more work done earlier during the formative educational years to make technology a field where females can flourish. I personally believe social media has had a detrimental effect, especially on girls who might have otherwise been drawn into tech.
Following Russia’s invasion of Ukraine, the UK joined the international community in condemning Vladimir Putin’s regime and in issuing an unprecedented package of severe economic sanctions. While its international actions have been swift and significant, the UK government has also announced that it will be taking major steps with domestic legislation to detect and prevent members of Russia’s elite – so-called ‘oligarchs’ – from misusing the economic system.
To that end, Prime Minister Boris Johnson has brought forward plans for the UK’s new Economic Crime Bill, in order to enable financial institutions and authorities to target Russian oligarch finances held in UK banks. Prime Minister Johnson said that the bill would ensure that President Putin and his supporters would have “nowhere to hide” their illegal money.
What is the Economic Crime Bill?
The Economic Crime (Transparency and Enforcement) Bill is a long-awaited legislative measure intended to target the anonymity of money launderers that exploit the UK’s financial system. Britain’s legal and financial community has urged the government to implement the Economic Crime Bill for years. First drafted in 2018, the bill was delayed as new priorities emerged: the invasion of Ukraine changed those priorities, prompting the UK government to fast-track the legislation, along with additional financial measures to follow in coming months.
The Economic Crime Bill was introduced into the UK’s Parliament on 1 March 2022. The new version of the bill contains the following legislative measures:
Overseas Entities Register
The Economic Crime Bill introduces a UK register of overseas entities that own property in the UK. The register will include information on the beneficial owners of those entities. UK companies are already required to provide beneficial ownership information to a register of People with Significant Control (PSC) and the new rules are intended to create parity for foreign entities.
The register will be retroactively applicable, extending to properties bought by foreign persons up to 20 years ago in England and Wales, and to properties bought since December 2014 in Scotland. Noncompliance with the regulations may result in fines of up to £500 per day, and prison sentences of up to 5 years.
Unexplained Wealth Orders
Unexplained Wealth Orders (UWO) require their targets to explain the source of their assets, including their properties, to the authorities. Where that explanation is unsatisfactory or inadequate, the authorities may assume the asset was obtained unlawfully, and confiscate it from its owner.
UWOs were introduced in the UK in January 2018 with the goal of addressing foreign criminals laundering money through property ownership. However, UWOs have proved difficult to enforce: only 9 UWOs have been issued since their introduction, with the most recent case ending in defeat for the UK’s National Crime Agency (NCA) at a cost of £1.5 million to the taxpayer. No UWOs have been issued since 2020.
The Economic Crime Bill has been designed to make UWOs easier to issue and enforce. Under the new rules, law enforcement authorities:
- Will have a longer period of time in which to review materials presented in response to a UWO.
- Will incur lower legal costs if an UWO prosecution is ultimately unsuccessful.
- Will be able to issue UWOs to the directors, officers, and trustees of a target asset, making it easier to address property ownership hidden behind foreign corporate structures.
Sanctions Enforcement
The Economic Crime Bill also reforms the UK’s sanctions enforcement rules by introducing strict liability for noncompliance. Under the current system, the Office for Financial Sanctions Implementation (OFSI) can only prosecute sanctions breaches if it has ‘reasonable cause to suspect’ that the person involved knew they were breaking the rules. New measures in the Economic Crime Bill will introduce a ‘strict civil liability test’, enabling OFSI to impose financial penalties for sanctions breaches regardless of any awareness of wrongdoing.
The introduction of strict liability will make it easier for OFSI to impose fines, and punish sanctions noncompliance. The new rules will also allow OFSI to publicly release the names of organisations that breach sanctions but that do not receive a fine.
Economic Crime Bill: Compliance
Given the current escalation in sanctions activity against Russia and against Russian oligarchs and politicians, it is vital that firms stay ahead of their regulatory responsibilities. In practice, this means implementing an effective risk management process that enables fast, efficient client name matching.
Ripjar’s risk screening solution integrates next generation name-matching software to ensure you maximise true positive hits on global sanctions and watchlists, and minimise false positives, across a range of language systems and character sets. Powered by machine learning technology, our solution includes advanced adverse media monitoring tools capable of analysing a spectrum of news sources across 21 languages in order to ensure you are informed as soon as your client’s risk profile changes.
Give yourself the best opportunity to understand and mitigate risks early: speak to Ripjar about how our screening technology can deliver significant commercial advantages.
Get in touch to learn how Ripjar can help your compliance with the Economic Crime Bill.
When an individual is elected to political office, or becomes a government employee, they may be classified as a politically exposed person (PEP). Anti-money laundering regulations in jurisdictions around the world require banks, financial institutions, and other obligated entities, to screen for politically exposed persons (PEPs) because of the elevated criminal risk that they present.
What are Politically Exposed Persons?
Politically exposed persons are individuals who, as a result of their political appointments or roles, are more likely to be exposed to, and be involved in, financial crimes such as corruption, bribery, money laundering, and the financing of terrorism. Since they often have access to large amounts of government funding, and may be able to evade anti-money laundering (AML) or counter-financing of terrorism (CFT) controls, PEPs pose an elevated regulatory compliance risk. Accordingly, firms must screen their customers to determine their status as PEPs as part of their Know Your Customer (KYC) processes – and adjust their compliance response accordingly.
While the PEP classification is often applied to elected officials and government employees, the term extends to cover military employees, members of the judiciary, or any individual with a prominent public or state-related function – along with their friends and family members.
Types of PEP
While there is no codified global definition, the Financial Action Task Force (FATF) defines a politically exposed person as ‘an individual who is or has been entrusted with a prominent function’. The FATF sets out requirements for PEP screening in its AML/CFT recommendations, and organises PEPs into three broad categories:
Foreign PEPs: Political figures, government employees, or prominent public figures in foreign countries may be designated as Foreign PEPs.
Domestic PEPs: Domestic PEPs may be political or public figures from the same country as their bank or service provider.
International PEPs: Not all PEPs are political or public figures. Certain employees with senior management positions at international or state-owned organisations may be classified as international PEPs. This classification is sometimes referred to as ‘heads of international organisations’ (HIO).
Relatives and close associates: Individuals that are close friends or family of PEPs may also present significant AML/CFT risk because of their proximity and potential involvement in financial crime. With that in mind, the FATF also sets out a PEP-adjacent category known as ‘relatives and close associates’ (RCO). Given their regulatory similarity to designated PEPs, RCOs should be subject to the same AML/CFT compliance measures.
PEP Screening Risk Categorisation
Not all politically exposed persons present the same level of compliance risk. When screening for PEPs, it is useful to organise customers into risk categories in order to deploy an efficient, and effective, compliance response. PEP risk categorisation should take into account the customer’s level of influence, their access to funds, and available opportunities for them to become involved in crimes. With that in mind, PEPs may be organised into the following risk categories:
High risk: Heads of state, political party leaders, members of parliament, military generals, heads of judiciary and law enforcement, directors of central banks
Medium risk: Senior government, military, law enforcement employees, senior civil servants and state-owned business directors, senior religious figures, senior diplomatic employees such as ambassadors
Low risk: Provincial, state-level, and local government employees, mayors, councillors.
Global PEP Regulations
The global PEP landscape includes the following notable regulatory regimes:
North America: The US, Canada and Mexico all mandate international PEP screening in their domestic AML/CFT legislation. However, since the Patriot Act (Section 312) mandates only the screening of Senior Foreign Political Figures (SFPF), firms in the US are not automatically required to conduct domestic PEP screening (although most do as a matter of best practice).
South America: Most South American countries require PEP screening for all categories of PEP. However, some countries are exceptions: in Chile, Venezuela, and Guyana, for example, there are no requirements to screen international PEPs, but foreign and domestic screening should take place. In Suriname, firms are required to screen only for foreign PEPs. By contrast, in Brazil, which deals with high numbers of informal financial activities, companies must screen against all PEPs.
It is worth noting that high levels of government and local government corruption affect South American countries and firms should reflect that consideration in the AML measures they deploy to handle the relevant transactions. Nicaragua and Panama, for example, currently feature on the FATF greylist.
Europe: PEP screening requirements are mandated across most European countries either through EU legislation in EU member-states, or legislative alignment in non-EU states. Turkey is a notable exception since it has no requirements for PEP screening.
Despite generally robust AML/CFT regulations, some European countries warrant increased PEP caution. Albania and Malta, for example, are currently included on the FATF greylist.
Asia: PEP screening requirements are highly divergent across Asian countries. While most larger (and some smaller) Asian countries have screening requirements for all categories of PEP, many, including China, Japan, South Korea, and New Zealand, require companies to screen only foreign PEPs. In Uzbekistan, there are no PEP screening obligations.
It should be noted that North Korea is on the FATF’s blacklist, and should be treated with extreme caution when deploying AML/CFT measures. Similarly, Cambodia, Myanmar, and the Philippines feature on the FATF greylist.
Middle East: While many Middle Eastern countries, including the Gulf states, and Israel require screening for all PEP categories, other countries in the region diverge. In Syria, for example, companies must screen only domestic and foreign PEPs, while Iran requires only foreign and international screening.
It is worth noting that Iran, like North Korea, is on the FATF’s blacklist and should be treated with caution. Similarly, Pakistan and Syria are on the FATF greylist.
Africa: Like Asia, African countries diverge on PEP screening regulations. Most African countries require screening for all categories of PEP, or at least foreign and domestic PEPs, but there are exceptions. In Angola, for example, companies are not required to screen for domestic PEPs, and in Tanzania, South Sudan, and Algeria, companies are not required to screen for domestic or international PEPs.
Many African countries deal with high levels of government corruption and several feature on the FATF greylist. Current African greylist countries are: Botswana, Burkina Faso, Mauritius, Morocco, Senegal, South Sudan, Uganda, Yemen, and Zimbabwe.
How to Comply with PEP Screening Regulations
PEP screening is built on effective KYC: companies must collect and analyse as much information as possible about their customers in order to determine their PEP classification. In practice, this means integrating an AML/CFT software solution capable of managing vast amounts of relevant risk data quickly and accurately. With that in mind, effective PEP screening should involve the following measures:
Customer identification: Companies must perform suitable due diligence in order to identify their customers and determine whether they should be classified as politically exposed persons.
Transaction monitoring: As high risk customers, PEPs’ transactions should be scrutinised for suspicious activity, including transactions in unusual amounts, or transactions with high risk jurisdictions.
PEP list screening: Certain jurisdictions issue PEP lists which companies may use to name-match customers. Companies may need to screen PEP lists in foreign jurisdictions to match foreign customers.
Sanction screening: Politically exposed persons that commit financial crimes and other violations of international law may be subject to economic sanctions. The relationship between PEPs and sanctions screening is an important AML/CFT consideration: firms should seek to match PEP names to the relevant sanctions and watch lists.
Adverse media: PEPs that are involved in financial crimes may feature in adverse news media before that information is confirmed by official sources. Accordingly, companies should integrate adverse media screening in order to capture negative stories that involve their PEP-classified customers.
Recent PEP Regulations
Global PEP regulations vary significantly by jurisdiction so it is important that companies understand their compliance responsibilities. The EU has taken steps to harmonise its PEP regulations, with the implementation of the Fifth and Sixth Anti-Money Laundering Directives (5AMLD/6AMLD). In particular, the Fifth AMLD set out requirements for member-states to compile, and make public, a functional PEP list that included both the names of PEPs and details about their public function.
5AMLD was implemented across the EU on 10th January 2020. 6AMLD, which harmonised PEP screening requirements across all EU member-states (amongst other AML/CFT measures), came into effect on 3 June 2021.
Get in touch to learn how Ripjar can help you implement effective PEP and compliance screening
Russia’s invasion of Ukraine on 24th February 2022 prompted a swift and severe response from the international community and triggered a range of economic sanctions unprecedented in their scope and severity. In coordination with the UK, the US and Canada, the EU joined Western economic powers in imposing sanctions against Russia designed to punish President Vladimir Putin’s regime, and degrade Russia’s ability to bring military power to bear against its neighbour.
The EU’s sanctions on Russia are intended to “cripple the Kremlin’s ability to finance the war, impose clear economic and political costs on Russia’s political elite, and diminish its economic base”. In addition to Russia’s economy, the EU is also targeting Russia’s transport, trade, and energy sectors in what foreign policy chief, Josep Borrell, has called “the harshest package of sanctions we have ever implemented.”
The EU issued the first round of sanctions following Russia’s initial incursion into Ukraine, but has since implemented a second round of sanctions that target the Russian economy more broadly, along with specific measures against a list of politicians and military commanders.
What are the EU’s Russia Sanctions?
Existing Sanctions
The EU imposed sanctions on Russia in 2014, following the annexation of Crimea. Sanctions were also implemented in response to the Russian government’s ongoing interference in Western democratic elections and its oppression of political dissidents and journalists – such as the poisoning and imprisonment of Alexei Navalny. The EU’s sanction regime targets individuals and entities and includes asset freezes, trade prohibitions, import and export bans, and travel bans.
The first round of 2022 sanctions: 23rd February 2022
The first round of the EU’s 2022 sanctions against Russia were announced on 23rd of February, in response to Russia’s recognition of the ‘independence’ of the Donetsk and Luhansk regions of Ukraine and subsequent troop incursions into those areas before the large-scale invasion began on 24th February. Josep Borrel characterised Russia’s recognition of Donetsk and Luhansk as an “illegal and unacceptable” violation of international law.
The sanctions entailed the following measures and restrictions:
- Asset freezes and travel bans against the 351 members of the Russian State Duma (the lower house of Russia’s parliament) who voted to recognise the ‘independence’ of Donetsk and Luhansk.
- Asset freezes and travel bans against 27 Russian individuals and entities deemed to have ‘contributed to the undermining or threatening of the territorial integrity, sovereignty, and independence of Ukraine’. The targets of the sanctions include:
- PSB Bank
- VEB Bank
- Bank Rossiya
- Internet Research Agency
- Sergei Shoigu, Russia’s Defence Minister
- Igor Shuvalov, Head of VEB Bank
- Maria Zaharova, Russian Foreign Ministry spokeswoman
- Margarita Simonyan, head of the RT TV news channel
- Prohibitions on Russian banks and state-owned entities accessing the EU’s financial markets and raising funds in the EU financial system.
- Further targeted sanctions prohibiting business relationships with individuals and entities in the Donetsk and Luhansk regions.
The second round of 2022 sanctions: 25th February, 2022
Following the first round of sanctions, and in response to Russia’s ‘unprovoked and unjustified’ escalation to a full-scale invasion, EU member-states implemented a second round of sanctions on 25th February, including sanctions targeting President Putin and Russian Minister of Foreign Affairs, Sergey Lavrov.
The second round of sanctions targets the following areas of the Russian economy and social infrastructure with a range of measures:
Finance
- Expanded measures to further cut Russian access to European capital markets.
- Prohibitions on Russian state-owned entities using EU trading venues.
- Prohibitions on Russian nationals and residents depositing funds into EU financial institutions, and on Russian nationals holding accounts with EU financial institutions.
- Prohibitions on the sale of euro-denominated securities to Russians.
- A ban on transactions with the Russian Central Bank.
Energy
- Prohibitions on the ‘sale, supply, transfer or export’ of goods and technologies, and on the provision of services, relating to oil refining to Russia.
Transport
- A ban on the export of goods and technology for use in the Russian aviation and space industries.
- A ban on the provision of insurance and maintenance services relating to aviation and space technology to Russia.
Technology
- Restrictions on the export of dual-use goods and technology to Russia, and on the export of goods and technology that may be used to enhance Russia’s defence and security sectors.
Visa Policy
- Russian diplomats and officials will no longer be able to benefit from visas that enable privileged access to the EU. The measure does not affect ordinary Russian citizens.
The EU has also frozen the assets of President Putin and the Minister of Foreign Affairs, Sergey Lavrov.
The EU’s sanctions measures are expected to affect 70% of the Russian banking market – in particular companies involved in defence – and prevent Russian politicians and oligarchs from hiding their money in European safe havens. They are also expected to increase Russian borrowing costs and inflation, and degrade Russia’s industrial sector.
Switzerland’s Sanctions on Russia
Although it is not an EU member-state, and traditionally remains neutral in issues relating to global conflicts, Switzerland has joined the EU and the wider international community in levelling sanctions against Russia. Switzerland’s government has stated that the sanctions do not violate the country’s long-held neutrality principle because they have been implemented as a way to address Russia’s violation of international law.
Switzerland’s Russia sanctions were implemented under the ‘Ordinance on Measures in connection with the situation in the Ukraine’ on 25th February 2022, and include the following measures:
- Asset freezes on designated Russian individuals and entities.
- A ban on entering business relationships with designated Russian individuals and entities.
- Asset freezes against Russian President Vladimir Putin, Prime Minister Mikhail Mishustin, and Foreign Minister Sergey Lavrov.
- A ban on imports and exports to the Ukrainian regions of Donetsk and Luhansk.
- Closure of Swiss airspace to all flights from Russia.
How to Comply with the EU’s Russia Sanctions
With Russia’s invasion of Ukraine ongoing, the sanctions risk landscape is likely to remain fluid for the foreseeable future. The complexity of the EU’s Russia sanctions programme is exacerbated by the capability of Russian oligarchs to hide money around Europe, and conceal their footprints with corporate structures and shell companies.
With that in mind, it is essential to have a balanced approach to sanctions and watchlist management that offers a holistic perspective on your company’s risks. Our risk management solution includes next generation name-matching software in order to maximise true matches and minimise false positives – even when matching Cyrillic, Asian and other character sets with Western or Latin names and vice versa.
One of the best ways to stay ahead of evolving sanctions compliance obligations, is to implement effective adverse media screening. Ripjar’s Adverse Media screening solution adds another dimension to your risk management capabilities, deploying continuous monitoring and identification measures in order to detect high risk customer names as soon as they are featured in news stories. Integrating machine learning data classification, our data processing hub can read articles in 21 languages, across a wide range of sources, and is designed to identify pertinent risk so that analysts can decide if further action must be taken.
Contact Us to learn more about risk screening