Politically exposed person

In financial regulation , ” politically exposed person ” ( PEP ) is a term describing someone who has been entrusted with a prominent public function. A PEP presents a higher risk for potential involvement in bribery and corruption by virtue of their position and the influence that they may hold. The terms politically exposed and senior foreign political are often used interchangeably, particularly in international forums. Foreign official is a term for persons under the Foreign Corrupt Practices Actor FCPA, and although definitions are similar to PEP, there are quite a few differences and should not be used interchangeably. The term PEP is typically used in the financial services industry, while ‘foreign official’ refers to the risks of third parties in all industries.

Definition by the Financial Action Task Force on Money Laundering

While there is no global definition of a PEP, most countries have based their definition on the 2003 Financial Action Task Force on Money Laundering (FATF) standard, as for the Swiss financial market regulator in 2011, which quoted it as “the international standard ” [1] or the Australian government in 2015. [2] FATF is an international inter-governmental body, founded in 1989 on the initiative of the G7 and hosted by the OECD , to set standards and energetic measures against money laundering , financing of terrorism and financing of mass destructionto preserve the integrity of the global financial system . [3] : 2

In February 2012, the FATF’s revised definition of politically exposed persons (PEP), revised from 2003, is as follows: [3] : 123

  • Foreign PEPs : Heads of State or Heads of Government , senior politicians, senior government, senior executives of state corporations, major political party Officials.
  • Domestic PEPs: Heads of state or of government, senior politicians, senior government, or senior officials of state owned corporations, important political party officials. (USPP), for example, US Law, section 312 of the US Patriot Act and its implementing regulations for enhanced due diligence for SFPFs (Senior Foreign Political Figure) only, defined as: “a senior official in the executive, legislative, administrative, military, or judicial branches of a ‘foreign’ government … a senior official of a major ‘foreign’ political party;
  • Persons Who are gold-have-been Entrusted with a prominent function by a state owned enterprise or an international organization Refers to members of senior management , ie directors, deputy directors and members of the board or equivalent functions.

Requirements for a PEP apply to family members or close associates, any individual Publicly Known gold Known by the financial institution to be a close personal or professional associate. [3] : 18 “The FATF definition is not intended to include middle-ranking or more junior individuals.” [3] : 121

A forerunner definition was by the 1997 OECD Anti-Bribery Convention aimed at reducing corruption in developing countries, which came into force February 1999; it used the term ‘foreign official’.

Implementation

Most of the 37 FATF members countries domestic and foreign PEPs with heightened scrutiny . The FATF guidance implies that a person is a foreign PEP, it de facto makes them a domestic PEP in their own country. This makes sense for crime prevention, because it is a product of crime, the PEP must first use its own domestic financial system and thus, the importance is placed on domestic, and non-foreign PEPs. [4]

Australia

Under Australia’s AML / CTF Rules, [5] Politically Exposed Persons (PEPs) are those who occupy a prominent position or functions in a government body or international organization, both within Australia. This definition also extends to their immediate family members and close associates.

The AML / CTF Rules define three categories of PEPs:

  • Domestic PEPs are individuals who have a prominent public position or function in an Australian government body
  • Foreign PEPs are individuals who hold a prominent public position or function in a government body of a foreign country.
  • International organizations are individuals who hold a prominent public position or function in an international organization.

A reporting entity is a member of PEP, or an associate of a PEP. The reporting entity must undertake this identification process before it provides the customer with a designated service, or as soon as practicable afterwards. A reporting entity must implement additional due diligence measures and risk management systems where the PEP is high ML / TF risk or is a foreign PEP.

Canada

Canada considers all foreign PEPs to pose a money laundering and terrorist financing risk. [6] Under the Amendments to the Proceedings of Crime (Money Laundering) and Terrorist Financing Act that came into effect in 2016, PEPs and Heads of International Organizations (HIOs). [7]

Chile

See also: Banco de Chile

In Chile, the financial institutions are mandated to report any transaction suspicious for potential involvement in bribery by virtue of a PEP’s position and the influence that they may hold. As of 2015 , 2,200 to 3,000 individuals are considered PEPs, 150 of them foreign, and also their second grade are under financial observation by the institutions. [8]

UK

As of January 2015 PEP’s definition is identical to the 2003 PEP’s; It is found in the Money Laundering Regulations 2007 Section 14 (5) [9] A politically exposed person is regarded Any individual Who fits’any of the criteria listed below:

  • A foreign person who has held a position in the public service outside the United Kingdom,
  • Members of the Courts of Central Banks
  • Ambassadors, charge d’affaires and high-ranking officers in the armed forces
  • Members of the administrative, management or supervisory bodies of state-owned enterprises
  • Heads of state, heads of government, ministers and deputy or assistant ministers
  • Members of parliaments
  • Members of supreme courts, constitutional courts or other high-level judicial bodies

The definition explicitly excludes middle-ranking or more junior officials.

PEP status also extends to related and close associates. Relatives and close associates include a spouse, a partner, children and their spouses or partners and parents. Close associates include any individual who is known to have a beneficial ownership of a legal entity, or any other close business relations. It also includes any of the following features:

The Financial Conduct Authority and the Joint Undertaking of Consolidated Financial Statements and their Comprehensive Guidance. [10]

The 4th EU AML Directive is expected to update the definition of domestic PEPs, and limited relative-status to spouse and partner only, and no longer the children and parents of PEPs. [11] [12]

USA

The term foreign official has-been used by US enforcement agencies Relating to persons Who-have similar characteristics as PEPs, as referenced in the US Foreign Corrupt Practices Act . 15 USC  § 78dd-1 It is used in all industries, not only by financial institutions. The Treasury ‘s Financial Crimes Enforcement Network (FinCEN) Did not use the term PEP in icts regulations as of 2010. [13] Suspicious activity requires a financial institution to submit a suspicious activity report to FinCEN. The term ‘Senior Foreign Political Figure’, as defined by the USA PATRIOT ActPEP, and also excludes middle-ranking or more junior individuals. citation needed ] The term PEP is recognized by the Wolfsberg Group of eleven global banks. [14]

History

The designation “politically exposed person” dates back to the late 1990s, in what is known as “Abacha Affair.” Sani Abacha was a Nigerian dictator who organized a large scale, based on the assets of the Nigerian central bank for some years and his associates. It is believed that several billion dollars were stolen, and that the funds were transferred to the United Kingdom and Switzerland . [15] In 2001, the Nigerian Government succeeded the Abacha Regime made an effort to recover the money. [16] It lodged complaints with several European agencies, including the Federal Office of Police of Switzerlandwhich investigated close to sixty Swiss banks. [17] In this investigation, the concept of “politically exposed person” emerged from the United Nations Convention against Corruption , entered into force in December 2005, with ongoing annual reviews of implementation and asset recovery. [18] It had become European Union law in 2004. [15]

PEP-specific compliance legislation addresses the link between government corruption , money laundering and terrorism financing . [19] Since September 11, 2001, more than 100 countries have changed their laws on financial services regulation, combating political corruption. quote needed ]

Heavy fines have been imposed on financial institutions with PEPs, as in the case of Riggs Bank . [20]

In spite of regulation, political leaders like Muammar Gaddafi and Hosni Mubarak have made news in 2013 for having frozen assets in US banks that did not follow due diligence . [21]

Risk screening and PEP datasets

Most financial institutions view PEP has a potential compliance risk, and performance enhanced monitoring of accounts that fall within this category. Screening for PEPs is usually performed at the beginning of the account, called initial due diligence or know your customer (KYC) [22] . Screening of accounts periodically is performed as part of ongoing due diligence.

There is a number of companies for regulatory, financial and reputational risk screening.

Due diligence to uncover PEPs can be time consuming and requires the checking of names, dates of birth, national identification numbers, and photos of clients against a reputable database of known PEPs, which usually contains over one million profiles. citation needed ] No ‘official’ PEP list exist. The CIA and UN lists of heads of states , which fall under the PEP definitions of FATF.

Vendors maintain their own database of PEPs and other high-risk customers. World Compliance [23] by Lexis Nexis has a global PEP list, Lexis Diligence [24] by Lexis Nexis , GSW Spotlight [25] by GoldSchaff & Wolfson, World-Check by Thomson Reuters , [26] Dow Jones offers a global PEP database , [27] Regulatory DataCorp offers PEP list screening, [28] Reed Elsevier ‘s’ Accuity’ advertises’ anti-money laundering solutions to banks and businesses worldwide ‘and uses the WorldCompliance PEP List. [29]

There are a number of public sources available for public use. An open source move is every politician [30] which is an open dataset on politicians. This list, however, includes the politicians involved in legislation, also known as Parliament members.

As of March 2016, Ukrainian activists has announced the launch of the public Register of Politically Exposed Persons – pep.org.ua, an exclusive public online database designed to help withstand money.

See also

  • Bribery Act 2010 (UKBA)
  • Foreign Corrupt Practices Act (FCPA)
  • Foreign official
  • Know your customer (KYC)
  • Money laundering
  • Suspicious activity report
  • US PATRIOT Act
  • Wolfsberg Group

References

  1. Jump up^ “Due diligence obligations of Swiss banks when handling assets of” politically exposed persons ” ” (PDF) . Eidgenoessische Finanzmarktaufsicht (FINMA). November 10, 2011.
  2. Jump up^ Australian Transaction Reports and Analysis Center (Austrac) (January 2015). “Draft guidance note 15/01” Key terms used in “politically exposed person” definition ” . Australian government. p. 12.
  3. ^ Jump up to:d FATF (15 February 2012). “INTERNATIONAL STANDARDS ON COMBATING MONEY LAUNDERING AND THE FINANCING OF TERRORISM & PROLIFERATION” (PDF) . ATF / OECD. p. 130.
  4. Jump up^ Duhaime, Christine (28 February 2014). “The $ 70 Billion Missing From the Ukraine: Does It Demonstrate a Whopping Failure of Global Anti-Money Laundering and Corruption Laws?” Duhaime’s Financial Guide and Anti-Money Laundering Law ” . Duhaime Law.
  5. Jump up^ (AUSTRAC), Australian Transaction Reports and Analysis Center (30 October 2014). “AML / CTF Act” .
  6. Jump up^ Duhaime, Christine (nd). “Politically Exposed Persons, Duhaime’s Financial Guide and Anti-Money Laundering Law” . Duhaime Law.
  7. Jump up^ “PEP Screening & Monitoring in Canada” . ComplyAdvantage . 7 June 2017.
  8. Jump up^ Chilean newspaper The Tercera 22 February 2015,PEP: así opera the financial vigilancia to the política classFernando Vega, retrieved on 22 February 2015
  9. Jump up^ “The Money Laundering Regulations 2007” . No. 2157 PART 2 Enhanced customer due diligence and ongoing monitoring, Regulation 14 . legislation.gov.uk. 2007 . Retrieved 14 May 2014 .
  10. Jump up^ “FCA Information on Money Laundering & Terrorist Financing” .
  11. Jump up^ “AMLD4 and Domestic PEPS” . Comply Advantage. December 2014.
  12. Jump up^ “The Fourth Anti Money Laundering Directive” . LK Shields.
  13. Jump up^ http://www.fincen.gov/news_room/testimony/pdf/20100204.pdf
  14. Jump up^ http://www.wolfsberg-principles.com/pdf/faq/Wolfsberg_PEP_FAQs_(2008).pdf
  15. ^ Jump up to:b French Senate, Justice and Home Affairs (30 June 2004). Proposal for a Directive of the European Parliament and of the Council on the prevention of the use of the financial system for the purpose of money laundering, including the financing of terrorism (in French). French Government.
  16. Jump up^ ‘Uzor, Chidi (8 August 2001). “Nigeria: Abacha Loot: Swiss Govt to Dock 60 Bankers, Lawyers” – via AllAfrica.
  17. Jump up^ “Switzerland provides mutual assistance in the Abacha case – To date, USD 645 million have been frozen in Switzerland” . Federal Office of Justice Switzerland. January 21, 2000.
  18. Jump up^ “United Nations Convention against Corruption” . An Office of Drugs and Crime (UNODC). nd . Retrieved 12 February 2015 .
  19. Jump up^ “FATF Guidance on PEP Legislation” (PDF) . FATF. June 2013.
  20. Jump up^ “At Riggs Bank, A Tangled Path Led to Scandal” . New York Times. July 19, 2004.
  21. Jump up^ “Frozen Mubarak assets worth around $ 1bn” . Daily News Egypt. April 17, 2013.
  22. Jump up^ “How to conduct proper customer due diligence (CDD) – AML-CFT” . AML-CFT . 2017-03-19 . Retrieved 2017-06-19 .
  23. Jump up^http://www.lexisnexis.com/risk/intl/en/resources/brochures/WorldCompliance-Data.pdf
  24. Jump up^ “Lexis Diligence® – Trusted Due Diligence Solution” . www.lexisnexis.com .
  25. Jump up^ “GSW Spotlight® – The most up-to-date database of high-risk profiles, debarred persons, sanctioned entities and PEPs” . www.gsw.global .
  26. Jump up^ “Thomson Reuters Risk Management Solutions” .
  27. Jump up^ http://www.dowjones.com/info/pep-list-screening.asp
  28. Jump up^ Regulatory DataCorp, Inc. (DRC) (Mar 18, 2013). “DR Congo Revolutionizes PEP Risk Management” (Press release) . Reuters . Retrieved 11 February 2015 .
  29. Jump up^ “Monday, September 29, 2014 Reed Elsevier acquires FircoSoft, the global Paris-based sanctions screening software group” . Reed business info. September 29, 2014 . Retrieved 11 February 2015 .
  30. Jump up^ “EveryPolitician: Political data for 233 countries” .

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