Bank Secrecy Act |
Politically Exposed Persons—Overview
Objective.Assess the adequacy of the bank’s systems to manage the risks associated with senior foreign political figures, often referred to as “politically exposed persons” (PEPs), and management’s ability to implement effective risk-based due diligence, monitoring, and reporting systems. If the relationship is a private banking account209 refer to core overview section, “Private Banking Due Diligence Program (Non-U.S. Persons),” for guidance.
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 and their associates. Because the risks presented by PEPs will vary, controls and monitoring related to these accounts and transactions should be risk-based.
The term “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.210 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.211 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.212 Titles alone may not provide sufficient information to determine if an individual is a PEP, since governments are organized differently from jurisdiction to jurisdiction.
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. Banks should consider various factors when determining if an individual is a PEP including:
- Official responsibilities of the individual’s office.
- The nature of the title (e.g., honorary or salaried).
- Level of authority over government activities or other officials.
- Access to significant government assets or funds.
In determining the acceptability of high-dollar or high-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 high-dollar or high-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 client’s status as a PEP.
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.
Risk Factors
In high-profile cases over the past few years, PEPs have used banks as conduits for their illegal activities, including corruption, bribery, and money laundering. However, not all PEPs present the same level of risk. This risk will vary depending on numerous factors, including the geographic locations involved and the individual’s position or authority. Risk will also vary depending on other factors including products and services used, or size or complexity of the account relationship. As a result of these factors, some PEPs may be lower risk and some may be higher risk for foreign corruption or money laundering. Banks that conduct business with dishonest PEPs face substantial reputation risk, additional regulatory scrutiny, and possible supervisory action. Red flags regarding transactions that may be related to the proceeds of foreign corruption are listed in the January 2001 interagency guidance. Banks also should be alert to a PEP’s control or influence over state-owned government or corporate accounts.
Risk Mitigation
Banks should exercise reasonable judgment in designing and implementing policies, procedures, and processes regarding PEPs. Banks should obtain risk-based due diligence information on PEPs and establish policies, procedures, and processes that provide for appropriate scrutiny and monitoring. Having appropriate risk-based account opening procedures for large-dollar or high-risk products and services are critical, as this is the prime opportunity for the bank to gather information for all customers, including PEPs. Refer to core overview section, “Private Banking Due Diligence Program (Non-U.S. Persons),” for expectations regarding private banking relationships with PEPs. Due diligence procedures should include, but should not be limited to, the following:
- Identify the accountholder and beneficial owner.
- Seek information directly from the individual regarding possible PEP status.
- Identify the accountholder’s country of residence.
- Obtain information regarding employment or other sources of funds.
- Check references, as appropriate, to determine whether the individual is or has been a PEP.
- Identify the source of wealth.
- Obtain information on immediate family members or close associates having transaction authority over the account.
- Determine the purpose of the account and the expected volume and nature of account activity.
- Make reasonable efforts to review public sources of information. These sources will vary depending upon each situation; however, banks should check the accountholder against reasonably accessible public databases (e.g., government databases, major news publications, free commercial databases available on the Internet, and fee-based databases, as appropriate).
PEP accounts are not limited to large or internationally focused banks. A PEP can open an account at any bank, regardless of its size or location. Banks should specifically identify PEP accounts and assess the degree of risks involved, which will vary. Management should be involved in the decision to accept a PEP account. If management determines after-the-fact that an account is a PEP account, it should evaluate the risks and take appropriate steps. The bank should exercise additional, reasonable due diligence with regard to such accounts. For example, the bank may increase reference inquiries, obtain additional background information on the PEP from branches or correspondents operating in the client’s home country, and make reasonable efforts to consult publicly available information sources. Ongoing risk-based monitoring of PEP accounts is critical to ensuring that the accounts are being used as anticipated.
