What’s the difference between a PEP check and a sanctions check?

PEP checks and sanctions checks are two of the most common screening processes carried out by regulated firms. They often run alongside each other, sometimes through the same software, which is partly why they get lumped together. But they do quite different jobs.

A politically exposed person (PEP) check identifies whether a client, beneficial owner or other relevant individual is a politically exposed person, meaning someone who holds, or has recently held, a prominent public function. 

A sanctions check identifies whether that same person appears on an official list of individuals, entities or ships subject to financial restrictions.

The distinction matters because the response required of you is different too.

Where each check comes from

Both checks have their roots in the standards set by FATF, the international body that shapes how countries approach anti-money laundering, counter-terrorist financing and counter-proliferation financing.

PEP screening reflects FATF Recommendation 12, which addresses the elevated corruption risk that comes with proximity to political power. 

PEPs are more likely than the general population to be in a position to misuse public funds, accept bribes or move proceeds of corruption through professional services. This doesn’t mean that every PEP is corrupt but simply that the opportunity exists.

Sanctions screening reflects FATF Recommendation 6, which addresses targeted financial sanctions relating to terrorism and proliferation, alongside broader sanctions regimes administered nationally and internationally. 

Alongside FATF’s Black List and Grey List, most countries publish a consolidated list of designated persons, entities and vessels, drawing from UN measures and their own foreign policy decisions.

What a PEP check tells you

A PEP check identifies an elevated risk category. Being a PEP is not illegal and PEPs are entitled to use professional and financial services like anyone else. The status simply tells you that corruption risk is higher than average and that closer scrutiny is required.

Where a PEP is identified, regulated firms are typically required to:

• obtain senior management approval before establishing or continuing the relationship;
• take adequate measures to establish source of funds and source of wealth;
• apply enhanced ongoing monitoring throughout the relationship.

The way UK firms are expected to treat domestic PEPs has changed since January 2024. Under the updated rules, a UK PEP, or a family member or known close associate of one, should be treated as a lower starting risk than a foreign PEP.

The change followed a period of public concern about UK politicians and other domestic PEPs being denied banking services on the basis of their status alone.

Read more about these updated rules in our quick guide to the new rules on UK PEPs.

What a sanctions check tells you

A sanctions check answers a different question. It asks whether the person or entity you’re dealing with is subject to a legal prohibition. If a true match is identified, the consequences are immediate and absolute. 

You cannot proceed with the transaction or relationship, you must freeze any funds or assets under your control and you must report the match to the relevant authority without delay.

Sanctions compliance does not operate on a risk-based approach. Dealing with a designated person’s funds, even unknowingly, can be an offence in most jurisdictions. 

How the two checks interact

Both checks are typically run at onboarding and produce alerts that need human review. And both need to continue throughout the relationship.

The risk profiles can also overlap. A PEP from a high-risk jurisdiction may also appear on a sanctions list, particularly where corruption or sanctions evasion is a concern. When multiple risk indicators align, scrutiny should increase proportionately.

What differs is the response when a match is confirmed:

• A confirmed PEP triggers enhanced due diligence and a documented decision about whether to proceed, with senior management approval.
• A confirmed sanctions match triggers an immediate stop, asset freeze and notification to the authorities.

Your AML policies, controls and procedures should distinguish clearly between the two, with separate escalation routes, decision-makers and record-keeping requirements. Staff need to understand which type of alert they’re looking at and what the law requires in response.

Final thoughts

PEP checks and sanctions checks both screen against lists, both run at onboarding and both continue through the life of the client relationship. The frameworks behind them, and the responses they require, are different.

When your screening processes recognise that distinction and your team understands which response applies to which alert, you protect the firm against both corruption-related risk and exposure to sanctions breaches. 

Building both checks into a structured AML framework, with clear documentation of decisions and reasoning, is what makes that protection consistent and defensible.