There is no single definition for
a Politically Exposed Person (PEP), however, broadly speaking, it refers to those
individuals who have or have had a high political profile, or hold or have held
public office.
The Financial Action Task Force (FATF)
defines a PEP as:
“An individual who has been entrusted with a prominent public function”[1]
The Dubai Financial Services
Authority provides the following definition:
“A natural person (and includes, where relevant, a family member or
close associate) who is or has been entrusted with a prominent public function,
including but not limited to, a head of state or of government, senior
politician, senior government, judicial or military official, ambassador,
senior executive of a state owned corporation, or an important political party
official, but not middle ranking or more junior individuals in these
categories.”[2]
PEP status itself does not, of
course, incriminate individuals or entities and there are many PEPs who do not
abuse their position and will not represent any additional risk because of
their status. It may, however, put a client into
a higher risk category.
PEPs can pose a higher AML risk to financial institutions who may be exposed to criminally derived money generated by corruption.
Individuals holding senior
positions who have, for example, authority over or access to government funds are
exposed to the possibility of corruption and could misuse their power and
influence for personal gain or advantage such as diverting funds for their own
benefit or taking bribes.
Juthamas Siriwan, the previous governor of the Tourism Authority of Thailand (TAT), responsible for disbursement of TAT funds, was sentenced in 2017, to 50 years in prison for corruption. Juthamas Siriwan had accepted a bribe from US film makers Gerald and Patricia Green for around $1.8m to award them TAT contracts between 2002 and 2007 including the festival management contract for the Bangkok Film Festival, allowing the Greens to generate more than $13.5m in revenue. The money was transferred from the business bank accounts belonging to the Greens to various bank accounts in the UK, Jersey and Singapore set up in the name of Jittisopa Siriwan. Jittisopha Siriwan, the daughter of Juthamas was sentenced to 44 years in prison for assisting in hiding the money in overseas bank accounts. The Greens were convicted under the Foreign Corrupt Practices Act.
PEPs include:
Domestic PEPs
Those individuals holding
prominent public positions within their home country, e.g. senior politician.
Foreign PEPs
Individuals holding prominent
public functions in a foreign country e.g. senior executives of state owned
entities.
Immediate family members or close associates
Family members of PEPs such as spouse or partner, children, parents and siblings.
PEPs may use family members or
close associates to help them conceal funds or assets misappropriated from
bribery, corruption or misuse of their position.
Close associates include individuals
who hold joint beneficial ownership of a legal entity with a PEP e.g. a
business partner.
James Ibori, a former governor of Delta State in Nigeria pleaded guilty in 2012 to stealing money from the state and laundering the funds. News articles report that the total sum embezzled could exceed $250m. His wife, sister, mistress and solicitor were convicted of money laundering. http://www.bbc.com/news/world-africa-17181056
In compliance with the DFSA Anti-Money Laundering,
Counter-Terrorist Financing and Sanctions Module firms regulated by the DFSA must
comply with the following:
Where a customer, or a beneficial owner of the customer, is
a Politically Exposed Person, a Relevant Person must ensure that it:
- increases the degree and nature of monitoring of the
business relationship, in order to determine whether the customer’s
transactions or activities appear unusual or suspicious; and
- obtains the approval of senior management to commence a
business relationship with the customer.
Useful sources of
information:
Anti-Money Laundering, Counter-Terrorist Financing and
Sanctions Module (AML) [VER13/02-17] - http://dfsa.complinet.com/en/display/display_main.html?rbid=1547&element_id=20015
FATF Guidance: Politically Exposed Persons (Recommendations
12 and 22) http://www.fatf-gafi.org/publications/fatfrecommendations/documents/peps-r12-r22.html
Transparency International – Corruption Perceptions Index
2016 by country - https://www.transparency.org/news/feature/corruption_perceptions_index_2016#table
Know Your Country - Money Laundering Risk ranking table by
country - https://www.knowyourcountry.com/country-ratings-table
[1]
FATF Guidance – Politically Exposed Persons http://www.fatf-gafi.org/media/fatf/documents/recommendations/Guidance-PEP-Rec12-22.pdf
[2]
DFSA Glossary GLO VER38_08-17 http://dfsa.complinet.com/net_file_store/new_rulebooks/d/f/DFSA1547_5717_VER380.pdf
