Sanctions and PEP Check
PEP · AML · KYC · OFAC · EDD · UBO · Sanctions Screening · PEP Screening · AML Background Check · Watchlist Screening
Definition
A Sanctions and PEP (Politically Exposed Person) Check is a mandatory compliance procedure conducted by banks, legal counsel, and financial intermediaries to verify that property transacting parties are not listed on global sanction watchlists or classified as high-risk political figures subject to Anti-Money Laundering regulations.
In detail
What is a Sanctions and PEP Check?
A Sanctions and PEP Check is a core component of Anti-Money Laundering (AML) and Know Your Customer (KYC) compliance protocols. It involves cross-referencing individuals or legal entities involved in a real estate transaction against global database registries containing international sanctions lists and records of Politically Exposed Persons (PEPs).
- Sanctions Screening: Verifies that neither the buyer, seller, nor beneficial owner appears on restrictive lists published by international bodies or foreign governments, such as the UN Security Council, the US Office of Foreign Assets Control (OFAC), the European Union, or the UK Office of Financial Sanctions Implementation (OFSI).
- PEP Screening: Identifies individuals who hold or have held prominent public functions (e.g., heads of state, senior politicians, judicial officials, military executives, or senior executives of state-owned enterprises), as well as their immediate family members and close associates.
The Role in Real Estate Transactions
Real estate is internationally recognized as a high-value asset class vulnerable to illicit financial flows. As a result, commercial banks, escrow agents, legal advisers, and notary offices must perform sanctions and PEP screening prior to executing property sales, registering ownership, or processing cross-border wire transfers.
Key steps in the screening workflow include:
1. Identity Verification & UBO Identification: Collecting verified identity documents and identifying the Ultimate Beneficial Owner (UBO) if purchasing through a corporate structure.
2. Database Cross-Checking: Screening names, dates of birth, and tax identification numbers against real-time regulatory risk intelligence databases.
3. Hit Resolution: Investigating potential matches ("false positives") versus confirmed matches.
4. Enhanced Due Diligence (EDD): If an individual is identified as a PEP or flagged for high-risk exposure, financial institutions demand additional verification regarding the origin of the funds (Source of Funds) and overall net worth (Source of Wealth).
Failure to properly conduct sanctions and PEP checks can result in severe consequences, including blocked international wire transfers, asset freezing, loss of banking licenses for financial intermediaries, and criminal liability under national AML statutes.
Georgian context
In Georgia, commercial banks—governed by the National Bank of Georgia (NBG) and operating under strict international correspondent banking standards—apply rigorous sanctions and PEP screening protocols. Georgian banks comply strictly with US (OFAC), EU, and UK sanction regimes.
Following geopolitical events in Eastern Europe, Georgian financial institutions implemented heightened oversight for cross-border capital inflows, particularly from high-risk or sanction-impacted jurisdictions. Developers selling new-build properties (where the 18% VAT is legally required to be included in the advertised sale price) cannot receive international buyer funds unless the sending and receiving banks clear the buyer through AML/PEP databases. Furthermore, investors applying for Georgian residence permits via real estate investments above the legal threshold of 150,000 USD undergo background and compliance verification coordinated through banking and state security frameworks.
Real example
A foreign investor attempts to purchase a commercial real estate unit in Tbilisi for $180,000 USD via a corporate entity registered in the Marshall Islands. Before accepting the transfer to pay the developer (whose price includes the statutory 18% VAT), the Georgian commercial bank conducts a UBO lookup and sanctions screening. The screening reveals that the primary shareholder is a former government minister in Eastern Europe (a PEP). The bank pauses the incoming wire transfer and initiates Enhanced Due Diligence (EDD), requesting certified tax returns, audited company statements, and bank reference letters to verify the legitimate source of wealth before releasing the funds for title registration.
Common mistakes
- ×Assuming Georgian financial institutions do not strictly enforce US OFAC or EU sanction databases.
- ×Failing to disclose the Ultimate Beneficial Owner (UBO) when acquiring Georgian real estate through an offshore company.
- ×Confusing a basic criminal record check with an international PEP and sanction screening procedure.
- ×Attempting to initiate large cross-border wire transfers for real estate deposits without pre-clearing source-of-funds documentation with the receiving bank.
Frequently asked questions
Why do Georgian banks require PEP and sanctions checks for real estate purchases?
Georgian commercial banks maintain international correspondent banking relationships with major US and European financial institutions. To maintain access to global SWIFT clearing networks and comply with National Bank of Georgia (NBG) rules, banks must adhere strictly to global AML guidelines, ensuring that money flowing into Georgian real estate does not breach international sanctions or conceal illicit political capital.
Does being classified as a PEP prevent an investor from buying property in Georgia?
No, being a Politically Exposed Person does not automatically disqualify an investor from purchasing property or obtaining residency. However, it triggers mandatory Enhanced Due Diligence (EDD). The buyer must supply comprehensive documentation proving the legitimate origin of their wealth and purchase funds before the bank will execute the transaction.
Is a sanctions check required when applying for a Georgian investment residence permit?
Yes. Qualifying for a Georgian residence permit through real estate requires an investment meeting the statutory minimum threshold of 150,000 USD. The required financial transfers must pass through Georgian commercial bank compliance, where sanctions and AML checks are conducted before funds are cleared and official valuation reports are processed for immigration state services.
How long does Enhanced Due Diligence (EDD) take if a PEP match occurs?
While standard automated screening takes under 24 to 48 hours, an EDD review triggered by a PEP match or potential sanction hit can take between 5 to 15 business days. The exact timeframe depends on how quickly the buyer submits verifiable documentation detailing their income, asset history, and corporate ownership structure.
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