Anti-money laundering 101 is to lookout for for terrorists, drug kingpins and oligarchs. You don’t want to do business with these people because they are on the government enforcement lists. AML 102 is to look out for “politically exposed persons.”
The international Financial Action Task Force defines a “politically exposed person as:
“an individual who is or has been entrusted with a prominent public function. Due to their position and influence, it is recognised that many PEPs are in positions that potentially can be abused for the purpose of committing money laundering offences and related predicate offences, including corruption and bribery, as well as conducting activity related to terrorist financing.”
You’re not barred from doing business with a politically exposed. You just need to be on higher alert to make sure the person is not using pilfered money or funneling money to bad people. The mayor of a small town should probably not be depositing millions of dollars in a personal account.
Last month FinCEN issued a new FAQ on client due diligence. That FAQ eschewed any bright-line testing or standards.
Like the earlier FAQ, this joint release adds very little to the compliance dialog.
“Banks must apply a risk-based approach to CDD in developing the risk profiles of their customers, including PEPs, and are required to establish and maintain written procedures reasonably designed to identify and verify beneficial owners of legal entity customers. More specifically, banks must adopt appropriate risk-based procedures for conducting CDD that, among other things, enable banks to: (i) understand the nature and purpose of customer relationships for the purpose of developing a customer risk profile, and (ii) conduct ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information.”
The joint statement does point out that there is no formal definition of a politically exposed person. Agreed.
The joint statement states that US public officials are not “politically exposed persons.” Disagree.
As I said above, the mayor of a small town should probably not be depositing millions of dollars in a personal account. Your financial institution should be keeping a close eye on the mayor to make sure illicit money does not come through you.
Unfortunately, this de-regulatory approach will put the burden on compliance having to push back against client relationship people. You will have to add on additional review to watch whether the politically exposed person breaks bad.
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