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PATRIOT Act: Section 312, PEPs, and Senior Foreign Political Figures -- WorldCompliance

I read that special taskforces are targeting the assets of corrupt PEPs, what are PEPs?

PEPs is an abbreviation for Politically Exposed Persons, a terminology used mostly in anti- money laundering legislation in Europe. It is to a great extent the equivalent of the Senior Foreign Political Figure, as defined by the USA PATRIOT Act.


According to section 312 USA PATRIOT Act, a Senior Foreign Political Figure is defined 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

Is the section 312 USA PATRIOT Act already effective?


The rule is in fact effective. The treasury department issued an interim final rule (billing code 4810-02). This regulation became effective in July 2002, for financial institutions that are:
a) an insured bank (as defined in section 3(h) of the Federal Deposit Insurance Act (12 U.S. C. 1813 (h))
b) a commercial bank
c) an agency or branch of a foreign bank in the United States
d) a federally insured credit union
e) a thrift institution; or
f) a corporation acting under section 25A of the Federal Reserve Act (12 U.S. C. 611 et seq.)
g) broker or dealer registered, or required to register, with the SEC under the Securities Exchange Act of 1934 (15 U.S. C. 78a et seq.)
h) an FCM or IB registered or required to register, with the CFTC under the Commodity Exchange Act (7 U.S. C 1 et seq.)

Finally, remember that the issue of foreign corruption was addressed even before the USA PATRIOT Act. In a guidance paper in 2001 ( ), the department of treasury required special attention for PEP accounts.

What does the USA PATRIOT Act require in reference to PEPs?


In summary, the Act requires two things: firstly spot those private banking accounts that are associated with PEPs, and secondly make sure that the funds do not derive from corruption.


No, it is only relevant for clients that are private banking clients. However, it is important to emphasize that banking organizations that knowingly engage in transactions that represent the proceeds of foreign official corruption may be involved in the crime of money laundering under U.S. law.


Section 312 of the Act defines the term private banking account to mean an account that requires a minimum deposit of at least $1,000,000, that is established for one or more individuals, and that is assigned to or administered or managed by, in whole or in part, an officer, employee, or agent of a financial institution acting as a liaison between the financial institution and the direct or beneficial owner of the account.


There are many prominent cases involving Politically Exposed Persons. Particularly European Tax Havens like Switzerland, Lichtenstein and Luxemburg experienced their fair share with those high risk clients; amongst them the Marcos family, Sani Abacha, Arnoldo Aleman and others. More recently, on August 5, 2003 Benazir Bhutto (the former Prime Minister of Pakistan and her husband, Asif Zardari have been found guilty of money laundering by a court in Switzerland and sentenced to a six-month suspended jail term. Around the same time, a special US task force in Miami succeeded in freezing assets at local banks belonging to Arnoldo Aleman (former president of Nicaragua) and Byron Jerez (Nicaragua's former chief tax collector).


The Bureau of Immigration and Customs Enforcement of the U.S. Department of Homeland Security, which calls itself ICE, has launched a unique pilot Task Force in Miami focusing on PEPs amongst other issues. According to media news, the 15 members of the unit concentrate on the corruption of foreign political figures, with a special focus on Ecuador, Guatemala, Honduras and Peru, Nicaragua and the Dominican Republic.


That is possible and the author will discuss several options in a separate article.

? 2003
Dirk Mohrmann, WorldCompliance

Automatically screen every client or potential client with a custom-built, due diligence database of more than 600,000 known or suspected terrorists, money launderers, illegal narcotics traffickers, arms dealers, fraudsters, and other white collar criminals, as well as Politically Exposed Persons, in more than 220 countries. WorldCompliance's database contains investigative research, as well as government sanctions, regulatory warnings and criminal indictments, and is particularly strong in the area of offshore tax havens. The modular structure of the database allows you decide on the level of protection that you feel is necessary for your company. This enables you to build a cost efficient compliance tool to protect your company. WorldCompliance is fully compatible with most other KYC systems, including OFAC or transaction-based monitoring systems.

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First published on 11/17/2003

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