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#2198340 - 11/15/18 07:12 PM Existing customer became a PEP. Close account?
CG Offline
Member
Joined: Oct 2012
Posts: 97
NY
Hello,

My bank does not onboard a PEP customer. Recently, one account holder became a PEP. Do we have to close the account, or it is not considered a policy exception, as the account holder was not a PEP at account opening?

Thank you.
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#2198342 - 11/15/18 07:20 PM Re: Existing customer became a PEP. Close account? CG
Buddy the Elf Offline
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Joined: May 2002
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There isn't a law or regulation that requires closing an account due to the customer being a PEP, unless it so happens that the individual also appears on a sanctions list. If your policy requires it, then you'd have to follow your policy. It's going to be your bank's decision if it's considered a policy exception or not.

I'm not sure closing an account for a PEP simply because it's a PEP (your bank policy notwithstanding) is the best course of action. I feel like some additional due diligence should be done on the individual prior to making any decisions. Maybe it's an account that could be subject to additional monitoring rather than closing. Just some food for thought.
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#2198347 - 11/15/18 07:24 PM Re: Existing customer became a PEP. Close account? CG
ACBbank Offline
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Joined: Jul 2006
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New York City
Not all PEPs are the same. There is a big difference between the Mayor of a small town and a General of a military. There are number of questions you need to ask yourself prior to banking a PEP.
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#2198350 - 11/15/18 07:38 PM Re: Existing customer became a PEP. Close account? CG
CG Offline
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Joined: Oct 2012
Posts: 97
NY
Thank you for your input. It is the bank's policy not to onboard a PEP, regardless of the level of risk it poses. Then, the account should be closed, regardless of the fact that the customer was not a PEP at account opening. I think it's time to revisit the policy as I also agree that denying a PEP is not risk management practice.
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#2198535 - 11/16/18 09:07 PM Re: Existing customer became a PEP. Close account? CG
John Burnett Offline
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Just so we're clear, is the PEP a foreign politically-exposed person or a domestic one?
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#2198537 - 11/16/18 09:09 PM Re: Existing customer became a PEP. Close account? CG
CG Offline
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Joined: Oct 2012
Posts: 97
NY
Domestic one
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#2198544 - 11/16/18 09:33 PM Re: Existing customer became a PEP. Close account? CG
TryingtoComply Offline
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Joined: Apr 2013
Posts: 2,199
The West
You have a very strict PEP policy. smile We require advance approval to open an account for a domestic PEP. Same would apply if we learned that they became one after the fact. The purpose is to make sure the account is coded correctly for EDD purposes.
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#2198558 - 11/16/18 10:58 PM Re: Existing customer became a PEP. Close account? CG
rlcarey Online
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Galveston, TX
We require advance approval to open an account for a domestic PEP.

Since there is no such animal, I assume you have a very detailed internal policy to defines this. So, you need advanced approval to open an account for the son of your local mayor or the daughter of high ranking member in the US armed forces or State department?? I just don't understand a stance such as this. It is an impossible task.
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#2198594 - 11/19/18 01:50 PM Re: Existing customer became a PEP. Close account? rlcarey
Adam Witmer Offline
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Joined: Sep 2010
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Originally Posted By rlcarey
...there is no such animal...

Randy, I don't disagree with you that internal policies are currently defining this and some of this is an impossible task, but I'm not sure the animal doesn't exist. I think the reason banks are defining PEPs to include domestic politically exposed persons is because FATF changed the definition in 2012 to include domestic individuals into the definition of a PEP, which aligned FATF rules with Article 52 of the United Nations Convention against Corruption (UNCAC).

FinCEN even mentions this on their website here: https://www.fincen.gov/resources/international/financial-action-task-force

"The definition of politically exposed persons (PEPs) has been broadened to include domestic PEPs and PEPs from international organizations."

While FinCEN has not yet given guidance regarding expectations for domestic PEPs and the Exam Manual still references "Senior Foreign" political figures, I believe it is only a matter of time before FinCEN incorporates domestic PEPs. Just like BO rules had been with FATF some time before it made it to FinCEN rules, it may take a while but I believe the animal is coming.

For reference on what may be coming, here is what FATF says about domestic PEPS: "5. For domestic PEPs and international organisation PEPs, financial institutions must take reasonable measures to determine whether a customer or beneficial owner is a domestic/international organisation PEP, and then assess the risk of the business relationship. For higher risk business relationships with domestic PEPs and international organisation PEPs, financial institutions should take additional measures consistent with those applicable to foreign PEPs."
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#2198604 - 11/19/18 02:52 PM Re: Existing customer became a PEP. Close account? CG
John Burnett Offline
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Joined: Oct 2000
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Cape Cod
Given the allegations -- proven or yet to be proven -- surrounding the actions of some government officials, it could be sooner rather than later that we see a push from FinCEN to identify them and risk rate them as PEPs.
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#2198606 - 11/19/18 02:56 PM Re: Existing customer became a PEP. Close account? CG
Victoria Aguilar Offline
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Joined: Dec 2014
Posts: 7
New York
We identify all of our PEPs to be high risk upon onboarding. The account is rated high risk for a minimum period of a year, the account can be lowered after that period unless there are other factors present.
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