General Observations and Challenges
• Foreign versus domestic PEPs. UNCAC calls for EDD for both foreign and domestic PEPs; FATF applies this requirement to foreign PEPs only, although an interpretative note “encourages” countries to extend the requirement to domestic PEPs (see also the “Who Is a PEP?” chapter in part 2). • Officials and their family members and close associates. The wording in UNCAC includes family and associates more expressly than does the wording in the FATF 40+9 Recommendations. With regard to close associates, UNCAC defines them to include companies and natural persons, but FATF does not specify (see also the “Who Is a PEP?” in part 2). • Other categories: There are a number of categories that are included in some definitions and excluded or limited in others (e.g., military officers, diplomats, judiciary) (see also the “Who Is a PEP?” in part 2). Some jurisdictions have taken efforts to clarify the PEP definition by elaborating categories. One example is the Third Money Laundering Directive adopted by the European Union (Third EU Directive) and its implementing measures.33 The Third EU Directive provides a specific legal PEP framework for European Union Member States. It is based upon the FATF definition and requirements, but differs in some core points (for example, rather than requiring EDD on all foreign PEPs as obliged under FATF, Article 13(4) of the Third EU Directive requires EDD only on PEPs residing in a foreign country). In an attempt to provide more guidance on the FATF definition, the implementing measures to the Third EU Directive lists examples of categories for PEPs. The implementing measures also introduce a one-year time period for those who have left office, after which the former prominent public official, their family members or close associates no longer need to be treated as a PEP. The measures narrow the scope of “family” to immediate families. These provisions have added further confusion to the definition issue for some banks and seem too narrow in light of typologies (see also the “Who Is a PEP?” chapter and the “How Long Is a PEP Considered a PEP” chapter in part 2).
3. “The classic corrupt PEP is dead”: Stock-taking of the emerging typologies, focused on lifting impediments to the identification of beneficial ownership. All parties visited advised, and anecdotal evidence suggests, that the classic methodology of corrupt PEPs putting funds directly into their own named accounts or that of immediate family members is apparently now a rarity. This could be read as a sign 33. Directive 2005/60/EC of the European Parliament and of the Council of October 26, 2005, on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing; Commission Directive 2006/70/EC of August 1, 2006, laying down implementing measures for Directive 2005/60/EC with regard to the definition of “politically exposed person” and the technical criteria for simplified customer due diligence procedures and for exemption on grounds of a financial activity conducted on an occasional or very limited basis. For the text of the directives, see appendix F. Provisions have since been enshrined in domestic legislation in most of the Member States.
19