AML 4 MSB 9. PEP Talk

Fear not, I'm not going to start shouting. PEP is yet another acronym. Politically Exposed Person.

It feels as though the technical detail of the definition is constantly shifting, but the guiding principle is easy enough.

From the guidance

"Politically Exposed Persons are persons that are entrusted with prominent public functions, whether in the UK or abroad. This because international standards issued by the Financial Action Taskforce (FATF) recognise that a PEP may be in a position to abuse their public office for private gain and a PEP may use the financial system to launder the proceeds of this abuse of office."

It should be noted that the PEP definition also includes family members of the PEP or close associates of the PEP.

"How the hell would I know?" I hear you cry. You are quite right, there is no foolproof way of detecting a PEP. HMRC suggest that you might;

" - ask the customer

  • search the internet
  • news agencies and sources..."

In practical terms - PEP detection needs to be part of your risk-based approach. You might for example ask the question over a certain limit, or if the transaction is unusual in another way.

If your business is presented with a PEP, you must conduct Enhanced Due Diligence. Essentially, you need to satisfy yourself that the person in front of you is not attempting to transact with the proceeds of abuse of a public office.

You must

  • obtain senior management approval before establishing a business relationship with that person
  • take adequate steps to establish the source of wealth and source of funds that are involved in the proposed business relationship or transaction
  • conduct enhanced ongoing monitoring where you've entered a business relationship.

Managing PEP exposure is ultimately more of an art than a science. the regulation and guidance relies on firms using their experience and knowledge of their market to sniff out corruption.

Properly worded policies and procedures, and implementation thereof, are the firm's protection. If you would like us to take a look at your policies and procedures - for free, the n get in touch.

Next up - Suspicious Activity Reports (SAR)