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Over the recent few years, financial crimes, particularly money laundering, have been rising significantly due to the illicit access of legitimate accounts by the imposters. In 2023, a money laundering risk index of up to 5.21 was reported in Mexico due to political disclosure and corrupt activities carried out by high-profile entities. 

Frequently, the politically exposed persons (PEPs) and their Relatives and Close Associates (RCAs) are directly or indirectly linked to money laundering operations. Therefore, it is necessary for financial institutions to optimize automated RCAs and PEP screening measures to assess the legitimacy of clients during the onboarding procedures. This blog investigates the loopholes in PEPs and RCA activities that often result in illicit monetary losses in the long-run.        

RCAs in PEP Screening – Who are They and Why They Matter 

The Relatives and Close Associates (RCAs) of politically exposed persons are entities that are not entitled to any political office or have economic responsibilities but are directly or indirectly linked to renowned political leaders. Oftentimes, a political entity’s family members and business partners are referred to as RCAs. It is, therefore, necessary to understand that not all PEPs and their close associates are involved in criminal activities. 

However, companies deciding to build new business relationships with political entities must ensure enhanced RCAs and PEP screening due to the higher level of money laundering and corruption risks linked with them. RCA screening allows businesses to investigate all the high-profile entities against the sanctions and PEP lists to understand their previous financial pattern. To optimize the results of RCA screening, businesses must understand the following elements:

• Integration of commercial customer databases enables businesses to evaluate clients against credible sources, leading to lower financial crimes.
• RCAs and PEP screening checks are stimulated through the incorporation of automated and AI-powered screening checks. 
• Adverse media screening plays a crucial role in the assessment of RCAs and PEPs ID credentials and financial patterns through the assistance of credible data sources.       

RCAs and PEP Screening – Maintaining Regulatory Compliance in the Banking Sector

In response to the prevailing money laundering and related financial crimes, businesses are required to conduct extensive RCAs and PEP screening checks that ensure compliance with effective regulatory guidelines. Here are some of the regulated measures used to optimize the RCA screening process:

• The PEPs are considered to be at higher risk of illicit activity involvement due to their authoritative position and influence over government decisions. Therefore, they are required to disclose the identity credentials of their close associates to streamline the identification process. 
• The RCA’s information must later be screened against the official public databases and government records to analyze their credibility.
• RCA’s source of wealth and assets must be assessed during the onboarding process to identify their financial patterns and risk profiles. This provides a thorough analysis of whether these entities are involved in the facilitation of unauthorized financial operations or not.     

Prevailing Challenges Observed During RCA Screening and Monitoring

During the RCAs and PEP screening checks, organizations frequently face several challenges. These challenges occur when unverified and unauthorized are used during the client assessment process. It is observed that during the PEP screening process, financial institutions often ignore the regulatory checks. This leads to non-compliance challenges that result in financial penalties and reputational damage for the underlying company. 

Illicit Techniques Used By PEPs and RCAs  

RCAs and PEP screening measures are emphasized by the regulatory authorities as they automate the identification of various channels exploited for illicit financial operations. Some of the most commonly exploited channels by RCAs and PEPs include the real estate sector. These illicit entities conceal their illicit gains by investing them in real estate properties. Additionally, the imposters benefit from offshore and shell companies to facilitate unauthorized transactional practices globally. The PEPs and their close associates misuse their political powers to conduct unethical operations that are harmful to long-term economic stability.  

Role of Credible PEP and RCA Monitoring Measures in AML Operations 

The integration of automated AML checks plays a crucial role in stimulating the credibility of RCAs and PEP screening checks. These risk-based screening checks ensure the detailed assessment of client’s financial histories, leading businesses to investigate whether or not they are involved in unauthorized financial or economic activity. 

Moreover, AML identity authentication checks help businesses ensure compliance with the regulatory checks. This ultimately enhances the company’s reputation while boosting its credibility in the minds of interested businesses as well.     

The Bottom Line 

RCAs and PEP screening play a crucial role in stimulating the financial credibility of businesses. These monitoring checks allow businesses to thoroughly investigate the financial histories and risk profiles of all the politically exposed individuals and their close associates. Therefore, the integration of automated PEP screening checks is necessary to investigate the true identities of all the individuals who are prone to illegal business operations. Through enhanced RCA screening checks, businesses are able to rectify the intensity of financial crimes.   

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