Politically Exposed Persons: Preventive Measures for the Banking Sector
• The proportion of prominent public officials and their relatives in relation to a bank’s overall customer base is likely to be small. Of the banks visited, the proportion of PEPs ranged from 1 percent to 5 percent.29 Since not all PEPs are corrupt, those who are corrupt form an even smaller subset. Banks were not as clear on the percentage of close associates—in part because they are harder to identify. • Corrupt PEPs are effectively hiding their identity from the banks, using associates and complex corporate vehicles to disguise their beneficial ownership of funds. They use intermediaries, such as accountants, lawyers, or trust and company service providers, who are involved on their behalf in the formation and management of corporate vehicles and schemes, but who may have little awareness of, or are complicit in, the unlawful conduct of the PEP.30 • Corrupt PEPs often seek the path of least resistance, placing the proceeds of corruption in banks and jurisdictions where AML controls are weak, less sophisticated, or good on paper but poorly enforced.
Why Focus on PEPs? If, as banks report, the number of corrupt PEPs is so low, is it really worth the resources expended? The following are some of the key reasons why policy makers need to increase efforts on PEPs: • Corruption has a devastating effect on development outcomes in some of the world’s poorest countries. An individual corrupt PEP can have a disproportionate impact on a country or region. • PEPs pose a substantial legal and reputational risk to the individual bank, and a reputational risk to a jurisdiction’s financial sector as a whole. The PEP scandals experienced in the past 20 years involving heads of state, senior officials and their family members and close associates have clearly demonstrated that a bank’s reputation will be very negatively affected and that public confidence in the ethical standards and even stability of the entire financial system can be undermined. Compliance levels with Recommendation 6 indicate insufficient mitigation of this risk. • Standard CDD is not sufficient, as proven by previous scandals. • Banks are already taking action on PEPs and many even go beyond the international standards. Providing clearer, more stringent legislation and regulations on PEPs may assist banks legally in putting more ambitious measures into place and, in practice, will “level the playing field” between banks. 29. During the field visits, some banks shared their total number of PEPs and related statistics on STR filings. Other banks shared a range (for example, “less than 10”). 30. The FATF “Glossary of Definitions Used in the Methodology” states that “intermediaries can be financial institutions, designated nonfinancial businesses and professions (DNFBPs) or other reliable persons or businesses that meet Criteria 9.1 to 9.4.” The same glossary states that DNFBPs include casinos, real estate agents, dealers in precious metals, dealers in precious stones, lawyers, notaries, other independent legal professionals and accountants, and trust and company service providers.
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