Politically Exposed Persons (PEP)

The BSA/AML Examination manual indicates that banks should "obtain comprehensive due diligence information on PEPs." It also states that banks should "specifically identify PEP accounts and assess the degree of risk involved." What are other banks doing to identify PEPs? I don't expect someone opening an account to volunteer that he/she is a PEP. Unlike the OFAC listings, I can't find any available listing of PEPs unless I want to pay a vendor. I appreciate any thoughts or recommendations on this matter.

Our Worldtracker software also lists PEPs, not just SDNs, SDGTs, SDNTs...

Depending on a number of factors; size of your bank, size/skill/experience of the staff doing EDD work, volume of accounts, and so on, you may find that paying a vendor, or subscribing to a service to be an economical approach.

There is no standard PEP list analagous to an OFAC or BofE listing. Further, just *who* you consider a PEP, or who you'll treat as a PEP is defined by your own risk assessment. To take embassy employees as an example; you would certainly include the diplomatic/intelligence/military staff as PEPs, but would you include their drivers? their personal assistants? any of the clerical staff? It all depends on your risk assessment.

Just my US$.02

This is a handy website... the first FAQ defines PEPs.

PEPS by Wolfsberg

Politically Exposed Persons (PEPS), Who Are They?

According to Basel Committee on Banking Supervision Publication “Customer due diligence for banks “October 2001” politically exposed persons (“PEPs”) are individuals who are or have been entrusted with prominent public functions, including heads of state or of government, senior politicians, senior government, judicial or military officials, senior executives of publicly owned corporations and important political party officials.


US PATRIOT Act, section 312 defines a Senior Foreign Political Figure as:


 Current or former senior official in the executive, legislative, administrative, military, or judicial branch of a foreign government (elected or not)
 A senior official of a major foreign political party
 A senior executive of a foreign government owned commercial enterprise, being a corporation, business or other entity formed by or for the benefit of any such individual
 An immediate family member of such individual; meaning spouse, parents, siblings, children, and spouse's parents or siblings
 Any individual publicly known (or actually known by the relevant financial institution) to be a close personal or professional associate


The Financial Action Task Force ( FATF) stressed the importance of due diligence related to Politically Exposed Persons” (PEPs)s by devoting Recommendation 6 Totally to this issue.
Recommendation 6 : Financial institutions should, in relation to politically exposed persons, in addition to performing normal due diligence measures:
Have appropriate risk management systems to determine whether the customer is a politically exposed person.
Obtain senior management approval for establishing business relationships with such customers.
Take reasonable measures to establish the source of wealth and source of funds.
Conduct enhanced ongoing monitoring of the business relationship.
According to FATF , Politically Exposed Persons” (PEPs) are individuals who are or have been entrusted with prominent public functions in a foreign country, for example Heads of State or of government, senior politicians, senior government, judicial or military officials, senior executives of state owned corporations, important political party officials. Business relationships with family members or close associates of PEPs involve reputational risks similar to those with PEPs themselves.

Identifying politically exposed persons

The greatest challenge for financial institutions is How to identify PEPs?
According to Wolfsberg Group Identifying Politically Exposed Persons can be a difficult undertaking, particularly, if the customer fails to provide important information or even gives false information. Despite all the banks' efforts at recognizing Politically Exposed Persons, it is a fact that they do not have the necessary powers, means nor information at their disposal to detect such persons. Banks are restricted in what information they can obtain. They must rely on the information Customers give them and that can be gleaned from business documents or from the media. In particular, when close associates or families of a Politically Exposed Person open a business relationship with a bank it is often impossible to establish that relationship a "PEP relationship" based on the limited information available to the banks.
The following prompts might - in addition to the standardized KyC procedures - be appropriate to recognize a Politically Exposed Person:
• The question of whether Customers or other persons involved in the business relationship perform a political function should form part of the standardized account opening process, especially in cases of Customers from corruption-prone countries.
• To let Customer advisor deal exclusively with Customers from a specific country/region might improve their knowledge and understanding of the political situation in that country/region.
• The issue of Politically Exposed Persons should form part of the regular KyC training programs
• Banks may use databases listing names of Politically Exposed Persons (and their entourage). In this regard, it would be helpful if authorities issuing directives on how to deal with Politically Exposed Person would support the banks.
Identifying politically exposed persons during the account opening

The normal account opening procedures will not necessarily provide information on whether a future Customer is a politically exposed person or whether the account is linked to such a person. Therefore, the financial institution should:

• gather sufficient information from the Customer, e.g., by direct questioning, including the provenance of the Customer and funds deposited to the account, to enable the financial institution to form a reasonable assessment as to whether the Customer is a PEP,
• check on significant Customers publicly available information or special research tools

Risk factors which could lead the financial institution not to open an account for PEP include, but are not limited to, the following:

• Any unexplained sources of wealth, e.g. where the value of property owned by the customer appears to be out of keeping with the prospective customer’s income levels;
• A lack of verifiable sources of income;
• A lack of any plausible reason for wishing to open an account in that jurisdiction.

• concerns over the country where the account holder has a political position or where the money originates, taking into account his position;
• expected receipts of large sums from governmental bodies or state-owned entities, including central banks;
• Source of wealth described as commission earned on government contracts for the procurement of goods or services;
The decision to open an account for a politically exposed person should be taken by at least one member of the financial institution at senior management level.

Useful public sources of information on PEPs

(1) The FATF’s annual reports and FATF’s annual “Report on Money Laundering Typologies”;
(2) Reports on corruption and money laundering issued by the United Nations and other international organizations;
(3) Reports published by non-governmental organizations that identify corruption, fraud and abuse;
(4) National and local government web sites, which may provide useful information on individuals holding senior positions within governmental bodies;
(5) Databases collecting publicly available information maintained by private organizations and
(6) The press and other media.
(7) Search tools available on the Internet

Resources
 Dirk Mohrmann, World Compliance
 Working paper of financial institutions, supervisory authorities on the handling of accounts linked to politically exposed persons – peps
 Basel Committee on Banking Supervision
 US PATRIOT Act,
 The Financial Action Task Force (FATF)
 Money Laundering Alert Different Articles
 Wolfsberg Group

Does anyone know of a PEP list other than one prepared by a vendor?

Only the CIA list of country leaders.

http://www.cia.gov/cia/publications/chiefs/