US Definition of a PEP – Politically Exposed Persons

US Definition of a PEP – Politically Exposed Persons

 

According to the US Bank Secrecy Act, Anti-Money Laundering Examination Manual, Banks should take all reasonable steps to ensure that they do not knowingly or unwittingly assist in hiding or moving the proceeds of corruption by senior foreign political figures, their families, and their associates. Because the risks presented by PEPs will vary by customer, product/service, country, and industry, identifying, monitoring, and designing controls for these accounts and transactions should be risk-based.

The US Definition of a PEP or “politically exposed person” generally includes a current or former senior foreign political figure, their immediate family, and their close associates. Interagency guidance issued in January 2001 offers banks resources that can help them to determine whether an individual is a PEP.

More specifically:

    • A “senior foreign political figure” is a senior official in the executive, legislative, administrative, military or judicial branches of a foreign government (whether elected or not), a senior official of a major foreign political party, or a senior executive of a foreign government-owned corporation. In addition, a senior foreign political figure includes any corporation, business, or other entity that has been formed by, or for the benefit of, a senior foreign political figure.
    • The “immediate family” of a senior foreign political figure typically includes the figure’s parents, siblings, spouse, children, and in-laws.
    • A “close associate” of a senior foreign political figure is a person who is widely and publicly known to maintain an unusually close relationship with the senior foreign political figure, and includes a person who is in a position to conduct substantial domestic and international financial transactions on behalf of the senior foreign political figure.

The definition of senior official or executive must remain sufficiently flexible to capture the range of individuals who, by virtue of their office or position, potentially pose a risk that their funds may be the proceeds of foreign corruption. Titles alone may not provide sufficient information to determine if an individual is a PEP, because governments are organized differently from jurisdiction to jurisdiction. In those cases when a bank files a SAR concerning a transaction that may involve the proceeds of foreign corruption, FinCEN has instructed banks to include the term “foreign corruption” in the narrative portion of the SAR.

Banks should establish risk-based controls and procedures that include reasonable steps to ascertain the status of an individual as a PEP and to conduct risk-based scrutiny of accounts held by these individuals. Risk will vary depending on other factors such as products and services used and size or complexity of the account relationship.

Banks also should consider various factors when determining if an individual is a PEP including:

    • Official responsibilities of the individual’s office
    • Nature of the title (e.g., honorary or salaried)
    • Level and nature of authority or influence over government activities or other officials
    • Access to significant government assets or funds

In determining the acceptability of higher-risk accounts, a bank should be able to obtain sufficient information to determine whether an individual is or is not a PEP. For example, when conducting due diligence on a higher-risk account, it would be usual for a bank to review a customer’s income sources, financial information, and professional background. These factors would likely require some review of past and present employment as well as general references that may identify a customer’s status as a PEP. Moreover, a bank should always keep in mind that identification of a customer’s status as a PEP should not automatically result in a higher-risk determination; it is only one factor the bank should consider in assessing the risk of a relationship.

Ascertaining whether a customer has a close association with a senior foreign political figure can be difficult, although focusing on those relationships that are “widely and publicly known” provides a reasonable limitation on expectations to identify close associates as PEPs. However, banks that have actual knowledge of a close association should consider their customer a PEP, even if such association is not otherwise widely or publicly known. Banks are expected to follow reasonable steps to ascertain the status of an individual, and the federal banking agencies and FinCEN recognize that these steps may not uncover all close associations.

Source: http://www.ffiec.gov/bsa_aml_infobase/pages_manual/OLM_087.htm