A Politically Exposed Person (PEP) is an individual who is or has been entrusted with a prominent public function, his/her close family members, and close associates. The exact definition of PEPs is specified in each country’s national law.
Politically Exposed Persons (PEPs) looking for financial services may expose regulated entities to significant money laundering and terrorist financing (ML/TF) risks.
Why?
PEPs often have significant positions and can influence governmental decisions. Often, they are tempted to influence a government's decisions for their benefit instead for the public’s benefit.
For example, Eva Kaili, a vice president in the European Parliament, was accused of corruption and money laundering. Investigators have seized nearly €1.5 million in cash from various Brussels properties, including €150,000 from her apartment. The investigators confiscated cash because they believe to be related to an "influence scandal implicating Qatar." (source: The Guardian)
The case indicates that it is very easy for a PEP to do something wrong, i.e., be involved in corruption and bribery for his/her personal interests.
Should regulated entities use the “once a PEP, always a PEP” approach?
PEPs are considered by regulated entities as high risk. However, should entities treat a PEP as high risk for the rest of their life when they cease to be a PEP?
Whether “once a PEP always a PEP” is a controversial question...
And there is no correct answer!
Whether you will always treat a PEP as PEP again depends on the national law.
In many countries, by law, once a customer is a PEP, the regulated entity must treat that individual as PEP for the rest of their life.
In some other countries, after some time a PEP ceases to be a PEP, the obliged entity is allowed to conduct a risk assessment that considers the following:
What type of position did the PEP have?
Does the customer still have influence and power due to the PEP position he held in the past?
Are any risks associated with the PEP position held in the past?
Suppose the obliged entity considers that the ex-PEP has low corruption and money laundering risk sometime after that person ceased to have that capacity. In that case, some national regulations allow the entity to re-assess the PEP and decide whether or not it will continue to treat the PEP as high risk.
On the other hand, some regulated entities, due to their risk appetite, may decide to treat a PEP as such for ever.
Whatever decision the obliged entity takes, it must be able to justify that decision to the regulator if requested.
Conclusion
There are various factors that need to be considered before deciding whether a PEP should be treated as such after he/she ceases to be a PEP.
The first one is the national AML Law.
The second one is the regulated entity's risk appetite and risk-based approach implementation.
The third one is the professional judgement of the Senior Management and Compliance Officer.
What are your thoughts?
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