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Show me the money

September 02nd, 2014 - Posted by Mark Dunn in Anti-Money Laundering

Community activists in a growing number of countries are looking to recover assets from ousted political leaders. The Stolen Asset Recovery Initiative (StAR) is a partnership between the World Bank Group and the United Nations Office on Drugs and Crime (UNODC) that supports international efforts to end safe havens for corrupt funds. StAR works with developing countries and financial centres to facilitate a more systematic and timely return of stolen assets.

Governments have promised additional legislation to make it easier to trace and recover assets. One recent initiative is David Cameron’s promise to establish a creation of registers of beneficial ownership of companies. Yet looking through recent House of Commons debates it’s possible to see that the UK have currently repatriated no assets to another country since 2008-09, although there are a number of ongoing investigations.

A 2013 report by the UK’s FCA (Financial Conduct Authority) found around 100 cases a year of money laundering risk and/or serious weaknesses in firms’ anti-money laundering controls where institutions failed to carry out adequate due diligence on customers, took on high risk clients and failed to properly identify politically exposed persons.

Politically exposed persons (PEPs) are deemed ‘high risk’ due to historical cases of senior government officials acquiring assets from their countries and laundering the proceeds of this corruption to disguise the origin of their illicit gains.

The official definition of a PEP is set by the Financial Action Task Force (FATF) through global anti-money laundering standards. There are two types of PEPS defined as:

  • Foreign PEPs: Individuals who are or have been entrusted with prominent public functions by a foreign country
  • Domestic PEPs: Individuals who are or have been entrusted domestically with prominent public functions

Examples of PEPs include Heads of State and Heads of Government. The PEP definition also extends to immediate family members including spouse, partner and children.

According to the definition, an individual ceases to be a PEP after one year of leaving their government or other public post. However, most companies continue to treat these individuals as high risk regardless of the time limit.

Identifying a prospective customer as a PEP does not necessarily mean business is not possible, but the individual should be treated as a higher risk to the business and more detailed enhanced due diligence checks should be made on the individual, their companies and associates as required under AML rules.

Checking if prospective third-party business partners have links to PEPs is also best practice for anti-bribery & corruption due diligence:

  • Foreign Public Officials (FPOs) are deemed ‘high risk’ under anti-bribery & corruption rules due to the many historical cases of senior government officials (particularly in emerging and developing markets) receiving bribes for helping companies win lucrative contracts
  • PEP checks are used to help establish if the directors, shareholders and beneficial owners of a prospective third-party business partner have close ties to governments and should therefore be deemed a higher risk of bribery & corruption

Companies need strong due diligence processes to protect themselves. Corruption risks can never be entirely removed but what regulators are looking for is evidence that effective due diligence has been performed on any customer who may be politically exposed. A structured, systematic approach to due diligence can achieve this.

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End notes

Lexis Diligence brings together all the intelligence you need in one place to conduct PEP screening and comply with anti-money laundering and anti-bribery regulatory requirements.

  • Includes World Compliance PEP list covering 1,200,000 global politicians and other individuals considered politically exposed persons
  • Includes Info4C PEP list covering 450,000 PEPs in more than 240 listed countries and territories
  • Also includes comprehensive negative news, company profiles, biographies and legal cases data for further enhanced due diligence on PEPs


What do you think?