I would like your feedback on the issue of PEPs. We are a small community bank with branches in NYC and New Jersey. Our customers are small businesses and individuals who reside in the area; we do not open accounts for non US persons or businesses. Our auditors have commented that we should check new accounts for PEPs and, also, should check sales of official checks and money orders for PEPs. On the issue of new accounts, while I understand that ehanced due dilligence is required when a customer is a PEP, given our customer base I really see no need to even check new accounts. On the issue of official check and money order sales, I believe that the auditor is way off base.
Any comments/guidance on these issues would be appreciated.

At the ABA AML Conference, regulators commented that community banks often think they don't have PEPs but forget that they have foreign students attending local private schools and colleges who could be the children of foreign political leaders.

Before rejecting the concept, think it through to identify if you do have any exposure. Perhaps you don't have to check everyone but might identify some subsets to check.

Kaybee, thats a good point. We do have a small number of accounts for foreign students. That said, how do we go about checking, since I know of no definitive listing?

I feel really dumb asking this, but what is a PEP?

PEP Politically Exposed Person. Presidents (leaders) of countries, High ranking officials, etc.

Without a vendor product the only thing I know of is the CIA Chiefs of State publication.

I think that is what the vendors refer to anyway, although some do further research into "close associates".

From the Wolfsberg Principles:

"Politically Exposed Persons" (frequently abbreviated as "PEPs"), referring to individuals holding or having held positions of public trust, such as government officials, senior executives of government corporations, politicians, important political party officials, etc., as well as their families and close associates.

Kaybee, the problem with using the CIA list is that it does not include family members and close associates so for this we would have to "Google" them and this would be like looking for a needle in a haystack.

Thank you Kaybee, I have been looking for a definition.

Should every account be checked against this list?

Thanks.

I know. But that is all there is - short of hiring an international investigator. We took the approach that we would search our international students and NRAs for the same name. If we found one with the same name, we would go further and question them as to any relationship.

Other than that, there is not much we can do about "known associates".

Any ideas?

Kaybee, no further ideas. You are doing all that could be reasonably expected (perhaps more so). I assume that this approach is OK with your examiners?

I am still confused..where do you find out who a PEP is? Is it the same as the SDN list of persons or countries..or is this a different list the requires different software... and from a new account perspective..can we just have a question the customer could answer yes or no to... to satisfy this issue...or is the bank's burden to verify? Thank you.. the PEP thing just came up in an audit and has us all scrambling for a solution>>>

Unfortunately there is not an official list. As Kaybee indicated earlier, there is a CIA list of government officials, but this does not include family members, associates, etc. This is another case of the government imposing requirements that are difficult to comply with.
The only saving grace, in my opinion, is that if the customer is a US person, with a local address, SS# or ITIN, there is little chance that he is a PEP. Convincing your auditor or examiner of this, however, might be difficult.

I will let you know! They are in now. We are moving to an automated CIP product but I think it just checks the CIA list for PEPs.

We also do some googles searches just for CYA.