Sanctions, PEPs and Proliferation Financing Risk
Domain 6 tests targeted financial sanctions, politically exposed person handling, and proliferation financing: the regimes, ownership rules, screening obligations, and the red flags specific to dual-use goods and trade.
Sanctions fundamentals
Targeted financial sanctions require asset freezing without prior notice and a prohibition on making funds or economic resources available to designated persons. Regimes include UN, OFAC, EU, UK OFSI and others, with sectoral and secondary sanctions adding complexity. Many regimes apply a strict liability standard: intent is irrelevant. Ownership rules matter, for example the OFAC 50% rule, under which entities owned 50% or more, directly or indirectly, by one or more blocked persons are themselves blocked.
PEPs
A PEP holds or has held a prominent public function: foreign, domestic, or in an international organisation. Risk extends to family members and close associates. PEP status is a risk factor, not an automatic bar; it triggers EDD, senior management approval, source of wealth and funds analysis, and enhanced ongoing monitoring.
Proliferation financing
PF risk arises where funds or goods support weapons of mass destruction programmes. Red flags include dual-use goods, vague end-user information, unusual shipping routes, third-country intermediaries, mismatched invoices and freight values, and customers reluctant to explain end use.
Worked example
A company is owned 50% by an individual on the SDN list and 50% by an unrelated investor. The analyst argues the entity is not listed and can be onboarded. Correct reasoning: under the 50% rule the entity is blocked by operation of ownership, so funds must be frozen and reported. A due-diligence-only approach would breach the prohibition on making funds available.
Traps that cost marks
- Treating domestic PEPs as automatically low risk; risk depends on role, country and profile.
- Clearing near matches without investigating identity fields.
- Confusing export controls with sanctions, or assuming trade finance is outside sanctions scope.
- Forgetting that ownership aggregation can reach 50% through multiple layers.
- Tipping off a customer that a sanction match is under review.