Hello again. You’re tuning into the fourth instalment of MemberCheck Explainers, a series of bite-sized videos where we break down some of the most common words, acronyms, phrases and terminologies in fraud and risk management.
If you’ve seen our previous episode, you should know by now what the differences are between AML and KYC.
Haven’t watched it yet? Remember to add it to your viewing list!
In the world of anti-money laundering (AML) and counter-terrorist financing (CTF), there are a lot of acronyms thrown around. It can be quite tricky to keep track of them all!
In this segment, we'll focus on three more key acronyms that you may have encountered already:
Politically Exposed Persons or PEPs,
Special Interest Persons, also known as SIPs,
and last but certainly not the least, RCAs, which stands for Relatives and Close Associates.
Organisations and reporting entities will need to know about these three groups of people to protect their integrity, as well as to meet their AML/CTF obligations. We’ll let you know why shortly.
Now, should we take a closer look at each group?
Starting with PEP or Politically Exposed Person.
According to the Financial Action Task Force or FATF, a PEP is an individual who has been entrusted with a prominent public function.
PEPs come in all shapes, sizes, and forms and FATF has clearly defined them according to which entities entrust prominent functions to PEPs. This includes Foreign PEPs, Domestic PEPs, and International Organisation PEPs.
Examples of PEPs include but are not limited to heads of state, senior politicians, senior government, judicial or military officials, senior executives of state-owned corporations, and important political party officials.
Due to their positions of power, PEPs may be prone and are able to commit bribery and corruption. As such, organisations and reporting entities are required to take extra precautions such as enhanced due diligence measures when onboarding or transacting with PEPs.
If you’ve ever been asked if you’re a PEP before, just remember it’s not a compliment.
Let’s move on to Special Interest Persons.
A SIP is an individual who has been identified as being involved in activities that may pose a higher risk for money laundering or terrorist financing. This includes but is not limited to individuals involved in drug trafficking, arms dealing, human trafficking, smuggling, corruption, and fraud. In other words, SIPs are someone to keep a close eye on!
As with PEPs, organisations and reporting entities must also identify, observe, and flag SIPs if they pose any potential risks to trust abuse or money laundering.
Next up is RCAs or Relatives and Close Associates.
An RCA is an individual who is closely associated with a PEP or SIP. This includes but is not limited to immediate family members, for example, spouse, children, parents, close business associates, and yes, even romantic partners!
RCAs may pose a high risk for money laundering or terrorist financing because of their association with high-risk individuals, like PEPs and SIPs. As a result, organisations and reporting entities must be aware of these risks posed by RCAs and take the necessary steps to mitigate those risks so that they are complying with their AML/CTF obligations.
So, what makes PEPs, SIPs, and RCAs so important for AML/CTF compliance and trust building in the digital age?
PEPs, SIPs, and RCAs present a greater risk for money laundering and terrorist financing. As such, it's important to always monitor your interactions with them very closely, as part of your AML/CTF regime.
By staying one step ahead and being aware on any changes in their circumstances that could potentially increase their risks, you are following the best practices to building up trust and confidence in your organisation.
To that end, we hope you’ve picked up some key takeaways from today’s episode!
Make sure to stay tuned for our next Explainer video for MemberCheck, helping you build trusted interactions by mitigating fraud and risk.