Politically Exposed Persons (PEPs): What they are and how to conduct KYC for them

27th November 2023

What is KYC?

KYC stands for ‘Know Your Customer’. It is a mandatory process of authenticating the identity of your customers, business partners, stakeholders and employees prior to engaging in business relationships with them. The procedure for KYC may be defined by various international, national and state level legislations. The objective of KYC mandates is to prevent financial institutions from funding or otherwise being used by criminal organizations and individuals for money laundering and other crimes.

Know Your Customer

What is Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD)?

CDD (Customer Due Diligence) and EDD (Enhanced Due Diligence) is the process used by businesses to collect, verify and authenticate information regarding their customers’ identities and risk profiles. These assessments allow organizations to take a risk-based approach towards dispensing or employing various services from these individuals. CDD measures can include verifying:

- Name

- Address

- Date of Birth

- Video verification

- Liveness check

- Proofs of income (income tax, pay stubs, etc)

- Government identity verification

What is a Politically Exposed Person PEP?

A Politically Exposed Persons (PEP) is any individual who has a prominent public function that puts them in a position of influence. The RBI includes Heads of States/Governments, senior politicians, senior government or judicial or military officers, senior executives of state-owned corporations and important political party officials in its definition of PEPs. Even close associates and family members of a PEP can be classified as PEPs themselves.

What is a Politically Exposed Person PEP?

Why is Politically Exposed Person PEP a red flag?

PEPs are in positions where they have more opportunities to engage in financial crime including corruption, bribery and money-laundering. Doing business with these individuals carries the risk of aiding and abetting these activities and being complicit in these crimes. This can result in severe legal consequences for financial institutions including:

- Exorbitant fines

- Multi-jurisdictional regulatory actions

- Reputation damage/loss of credit rating

- Criminal proceedings

- Added operation costs

- Personal liability

In 2023, global penalties for non-compliance exceeded $8 billion in 2022.

How do you screen Politically Exposed Person PEPs?

PEPs can be screened, identified and assessed for risk by conducting in-depth KYC procedures. Their identities and activities are recorded and available on multiple government databases. Perfios KScans integrates with a comprehensive list of these database to enable airtight risk profiling:

Source grouping Datapoints covered
MCA a) PSUs: Companies having “SGC” or “GOI” as part of their CIN
b) Current Management of PSUs
c) Former Management of PSUs
Lok Sabha a) Candidate Affidavit Management Portal - (Current, Contesting and Accepted Members)
b) Parliament of India: Lok Sabha Members - (Current Members)
c) Parliament of India: Rajya Sabha Members - (Current Members)
Rajya Sabha
Legislative Assemblies a) Candidate Affidavit Management Portal
b) National eVidhan Application: Digital Legislatures - Assembly
c) State Legislative Assembly Websites
Legislative Councils a) Candidate Affidavit Management Portal
b) National eVidhan Application: Digital Legislatures – Council
c) State Legislative Council Websites
Members/Executives of Legal, Statutory and Judicial Bodies a) List of IAS, IPS and IRS Officers
b) Immovable Property Return of IAS, IPS & IRS Officers
c) Department of Justice - Officers, Supreme Court and High Court Judges, Chief Justice & Judges of Supreme Court and High Courts, Chief Justice and Sitting Judges of High Courts.
Politically Exposed Persons of Non- Indian Nationalities • Indonesia
• Singapore
• Thailand
• Malaysia
• Australia
• U.K.
• Vietnam

The Sources listed above would be collated into Individual Profiles having the following data points as per availability at each Source:

• Member Name
• Name of Spouse
• PAN of Spouse
• Contact Number
• Email
• Local/Residential Address
• Permanent Address
• State
• Assembly Constituency
• District
• Party Name
• Member Photo
• Date of Birth
• Father’s Name
• Mother’s Name
• Highest Qualification
• Office Held From Date
• Office Held To Date
• Marital Status
• Designation
• Committees

Additionally, data extracted from Candidate Affidavits would further enrich Individual Profiles with the following:

• Total Income shown in ITR for last 5 F.Y.s
• Pending Criminal Cases
• Cases of Conviction
• Details of Movable Assets of Self, Spouse and Dependants
• Details of Immovable Assets
• Liabilities/Dues to Public Financial Institutions and the Government
• Income Tax Dues

What makes Perfios KScan the best solution for you?

What makes Perfios KScan the best solution for you?

1. Single-window visibility of all counter-party activities and risk profile.

2. Regular data updates to databases and continual integration of new data sources.

3. Easy API integration that reduces upfront integration costs, time and effort.

4. Filters and name matching for accurate results

5. Best in industry security

6. Bulk transaction handling - We handle 20 lakh plus API calls everyday

How do you proceed once you identify Politically Exposed Person PEPs?

1. Assess AML risk and source of funding at the very beginning of a relationship, financial transaction or trade activity.

2. Gather and check all the information available on the counter party in the public domain and identify where enhanced monitoring is required.

3. Take a decision to start a relationship with a politically exposed partner at a senior level and clearly spell out the stipulations in your Customer Acceptance Policy (CAP).

4. Automate enhanced monitoring of business partners for suspicious activities on an ongoing basis.

About Perfios

Perfios Software Solutions is India’s largest SaaS-based B2B fintech software company enabling 900+ FIs to take informed decisions in real-time. Headquartered in Bangalore, India, Perfios specializes in real-time credit decisioning, analytics, onboarding automation, due diligence, monitoring, litigation automation, and more.

Perfios’ core data platform has been built to aggregate and analyze both structured and unstructured data and provide vertical solutions combining both consented and public data for the BFSI space catering to their stringent Scale Performance, Security, and other SLA requirements.

You can write to us at connect@perfios.com.

For more information on our solutions, contact us at https://solutions.perfios.com/request-for-demo

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