The answer first
Sanctions and politically exposed persons (PEPs) are not only a concern for banks. Banks and payment providers screen every customer and payment, and a counterparty on a sanctions list can freeze your payments or close your account. Regulated businesses, such as TCSPs, money service operators and DPMS registrants, must screen as a legal requirement.
A PEP is a person entrusted with a prominent public function, with their family members and close associates. PEP status calls for enhanced due diligence, not automatic refusal.
At a glance
- Hong Kong sanctions
- UN sanctions, implemented under the United Nations Sanctions Ordinance
- Banks
- Also apply other sanctions regimes in their own policies
- PEPs
- Enhanced due diligence, not automatic refusal
- When to screen
- At onboarding, periodically, and when lists change
Why it matters to your business
- Payments involving sanctioned persons or places may be blocked or returned.
- Banks may close accounts of customers who deal with sanctioned parties.
- Regulated businesses face penalties for failing to screen.
- Reputational damage from dealing with sanctioned or corrupt parties.
What screening involves
| Step | Action |
|---|---|
| Identify | Collect full names, dates of birth and nationality of customers, owners and key suppliers |
| Screen | Check names against relevant sanctions lists and PEP information |
| Assess matches | Resolve possible matches; many are false positives |
| Act | Escalate true matches; apply enhanced due diligence for PEPs; refuse where required |
| Record | Keep records of checks and decisions |
| Repeat | Screen again periodically and when lists change |
Key takeawayMost possible matches are false positives. The value of screening lies in resolving them carefully and recording why, not in the number of alerts.
PEPs in practice
- Hong Kong's AML law distinguishes between non-Hong Kong PEPs and Hong Kong and international organisation PEPs, with different required measures.
- Enhanced measures typically include senior management approval and understanding the source of wealth and funds.
- Former PEPs may, in some circumstances, be treated as lower risk after assessment.
Specialist adviceSanctions laws differ between jurisdictions and can apply to your business because of the currency used, the bank involved or the nationality of your staff. Take advice on any potential match.
Self-check: where do you stand?
| Question | If the answer is no |
|---|---|
| Do you know who ultimately owns your main customers and suppliers? | Ask and record it |
| Do you screen new counterparties? | Introduce screening at onboarding |
| Do you have a process for possible matches? | Document escalation steps |
| Do you keep records of checks? | Retain them for the required period |
How DBMS Global can help
- AML/CTF policies, risk assessments and screening procedures.
- Staff training on sanctions and PEPs.
- Support for regulated businesses, drawing on our experience as a licensed TCSP.
In summary
- Banks screen everything, so should you.
- PEPs need enhanced checks, not automatic refusal.
- Record every decision.
Official references
- United Nations Sanctions Ordinance (Cap. 537)
- Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615), Schedule 2
- Commerce and Economic Development Bureau: UN sanctions, www.cedb.gov.hk