PEP and Sanctions Screening in AML: The Complete Guide

PEP screening and sanctions screening are two pillars of anti-money laundering and counter-terrorist financing (AML/CFT). Every obliged entity must know who it is dealing with: is the individual or company a politically exposed person? Do they appear on an international sanctions list? These checks are not optional, and under the new European regulatory package they must be carried out both when the business relationship begins and throughout its duration.

‍

This article explains clearly what a PEP is, what sanctions screening involves, what AML6 expects, and how to handle the trickiest issue in day-to-day operations: false positives.

‍

In short

‍

• A PEP (politically exposed person) is someone who holds or has held prominent public functions, along with their close family members and associates. This calls for enhanced due diligence, not a ban.
• Sanctions screening consists of checking that a client, whether an individual or a company, does not appear on international sanctions lists (EU, UN, US OFAC, etc.).
• A match on a sanctions list triggers measures: freezing assets, blocking the transaction, reporting to the competent authority.
• Under AML6, these checks are expected at onboarding and on a continuous basis, because the lists are constantly changing.
• The real operational challenge: managing homonyms and false positives without blocking a legitimate client, and documenting every decision.

‍

PEP: what are we talking about?

‍

A PEP, or politically exposed person, is a natural person who holds or has held prominent public functions. This includes, for example, heads of state and government, ministers, members of parliament, senior judges, executives of state-owned companies or central banks, and high-ranking military officers.

‍

The concept does not stop at the person themselves. It also covers their close family members (spouse, children, parents) and known associates, since these people can be used as conduits to move funds of questionable origin.

‍

Why is this status sensitive?

‍

PEP status is not an accusation. It reflects a higher risk linked to the position held: exposure to corruption, misappropriation of public funds and money laundering. A PEP holds decision-making power and access to resources that can be diverted.

‍

That is why identifying a PEP does not lead to a ban on entering into a relationship. It triggers enhanced due diligence: sign-off from a more senior level, an understanding of the source of funds and wealth, and closer monitoring of transactions. The aim is to address the risk, not to exclude the person.

‍

Sanctions screening

‍

Sanctions screening consists of checking that a client, whether a natural person or a company, does not appear on an international sanctions list. These lists are published by authorities such as the European Union, the UN and the US OFAC, and target individuals, organisations or entities subject to restrictive measures.

‍

Unlike PEP status, a confirmed match on a sanctions list has immediate and strict consequences. The obliged entity must then apply concrete measures:

‍

• Freezing assets held on behalf of the targeted person or entity.
• Blocking the transaction or refusing to enter into a relationship.
• Reporting to the competent authority.

‍

Unlike a PEP, a person or company under sanctions cannot simply be subject to enhanced due diligence: the business relationship is restricted or prohibited by the measure itself.

‍

What AML6 expects

‍

The European regulatory package strengthens the expectations around screening. Two key moments are targeted. To place these checks within the broader context of the reform, see our dedicated article on AML6 and anti-money laundering regulation.

‍

At onboarding

‍

PEP and sanctions screening is an integral part of onboarding due diligence. Before accepting a new client, the entity must verify their identity, understand their profile, and check them against PEP and sanctions lists. This check ties into the whole process described in our complete KYC guide.

‍

In continuous monitoring

‍

A one-off check is not enough. Lists change: a client who is perfectly compliant today may be added to a sanctions list tomorrow, or take up a function that makes them a PEP. AML6 therefore expects continuous monitoring of the portfolio, making it possible to detect any new match after onboarding and to react without delay.

‍

The false positives challenge

‍

Screening generates many matches that turn out not to be matches at all. This is the problem of homonyms and false positives: a legitimate client shares the same name as a listed person, without being that person.

‍

Two pitfalls must be avoided:

‍

• Blocking a legitimate client out of excessive caution, which harms the experience and loses business.
• Dismissing a genuine alert too quickly, which exposes the entity to a serious breach.

‍

The right approach is to enrich the comparison with distinguishing data (date of birth, nationality, country of residence, function) to decide between a true and a false match. Every decision, whether it confirms or dismisses an alert, must be documented.

‍

Best practices

‍

For robust and defensible PEP and sanctions screening:

‍

• Screen at onboarding and continuously. Do not treat the check as a one-off event, but as an ongoing process across the entire portfolio.
• Use reliable, up-to-date lists. Official sources (EU, UN, OFAC) change frequently; updates must be regular and traceable.
• Reduce false positives through data. Cross-reference several identifying attributes to tell a homonym apart from a genuine match.
• Match the response to the type of alert. Enhanced due diligence for a PEP, freezing or blocking measures for a sanctions match.
• Document every decision. Keep a record of the alert, the analysis and the conclusion so you have a full audit trail in the event of an inspection.
• Automate what can be automated. A solution that compares clients against the lists in real time frees up compliance teams for the cases that are genuinely at risk.

‍

In conclusion

‍

PEP screening and sanctions screening follow two complementary logics. The first flags a risk to be managed through enhanced due diligence, without prohibiting the relationship. The second imposes strict measures as soon as a match is confirmed on a sanctions list. Under AML6, these checks must be continuous rather than one-off, and every decision must remain documented and auditable. Done well, they protect the entity against money laundering and terrorist financing while preserving the experience of legitimate clients.

‍

Sources: European Union (sanctions lists), United Nations (UN), Office of Foreign Assets Control (OFAC), European anti-money laundering directives (AML package).