PEPs Dealing with Politically Exposed Persons at Home and Abroad. Hans-Peter Bauer Stockholm October 5 th 2017

Transcription

1 PEPs Dealing with Politically Exposed Persons at Home and Abroad Hans-Peter Bauer Stockholm October 5 th 2017

2 Famous PEP Examples Shah of Persia Salinas of Mexico Omar Bongo of Gabon Marcos of the Philipines Sani Abacha of Nigeria Prince Turki bin Nasser and Prince Bandar bin Sultan of Saudi Arabia (BAE)? Thaksin Shinawatra of Thailand Mugabe of Zimbabwe Mubarak of Egypt Ben Ali of Tunesia Zuma of South Africa? Najib Razak of Malaysia (1MBD)? Who will be next?

3 PEP Risk Individuals holding such positions May misuse their power and influence for for personal gain and advantage or, for the personal gain or advantage of relatives or close associates May conceal funds or assets misappropriated as a result of abuse of their official position or resulting from bribery and grand corruption, directly or indirectly May use their power and influence to gain access to, or control of, legal entities for similar purposes. Risks for banks Banks are abused to conceal such illegal proceeds of crime Banks are sanctioned for insufficient Compliance and Risk Control Reputational Risk

4 FATF Definition (2013) individuals who are or have been entrusted with prominent public functions by a foreign country, for example Heads of State or of government, senior politicians, senior government, judicial or military officials, senior executives of state owned corporations, important political party officials.

5 Definition of a PEP (Wolfsberg Criteria) The decisive criteria must be the possibility of grand corruption Seniority, prominence or importance to be categorized as PEP Countries political and legal system, vulnerability to corruption Responsibility of an individual s function Nature of the title (salaried or honorary) Level of authority Influence on awards of government tenders or contracts Links to industries prone to corruption Access to assets and funds Compare official definition to public perception

6 Functional Definition of a PEP (narrow) Heads of State, heads of government and ministers Senior judicial officials who sit on bodies whose decisions are not subject to further appeal Heads and other high-ranking officers holding senior positions in the armed forces Members of ruling royal families with governing responsibilities Senior executives of state-owned enterprises, where the state owned enterprise has genuine economic or political importance Senior officials of major political parties

7 Functional Definition of a PEP (wider) Heads of supranational bodies, e.g. UN, IMF, WB Members of parliament or national legislatures, senior members of the diplomatic corps e.g. ambassadors, chargés d affaires Members of boards of central banks City mayors and governors or leaders of federal regions How about Heads of International Sports Organizations such as FIFA, UEFA, IOC

8 Definition of Close Family Members of a PEP FATF Family members are individuals who are related to a PEP either directly (consanguinity) or through marriage or similar (civil) forms of partnership. WOLFSBERG will include a PEP s direct family members, their spouse, their children and their spouses, parents and the siblings of the PEP Are family members PEPs? E.g. The spouse of the daughter of the US Ambassador to Norway

9 Definition of Close Associates of a PEP FATF Close associates are individuals who are closely connected to a PEP, either socially or professionally. WOLFSBERG will include a PEP s widely- and publicly-known close business colleagues or personal advisors, in particular persons acting in a financial fiduciary capacity Are Close Associates PEPS? E.g. Putin s violinist friend?

10 How to Identify Close Family or Associates Making enquiries regarding the PEP status of prospective customers during the account opening process Screening new and prospective customers and key principals of the overall customer relationship against a database of such persons. These databases may be developed internally or provided by an external service provider In certain circumstances, searching for publicly available information from reputable sources6 The inclusion of appropriate PEP training to relevant staff. This may form part of regular anti-money laundering (AML) training Publicly available information on close family and advisors in most cases is very limited.

11 Foreign versus Domestic PEPs A recent development (FATF and the 4 th EUMLD) Is there a fundamental difference? How to deal with domestic PEPs in your country Apply the Risk Based Approach The case of Lord Clement Jones

12 PEP Control of Organizations Organizations where the PEP is in control or the beneficial owner Where the organization can be used in furtherance of corrupt purposes High Risk Private Investment vehicles or trusts Low Risk Where it is a publicly traded company listed on a recognized exchange, subject to appropriate listing rules, good governance requirements and transparent reporting Where the organization is well regulated and subject to independent supervision, e.g. banks and other FIs Private or state owned organizations (including Central Banks, sovereign wealth funds) subject to good governance, appropriate checks and balances and transparent reporting E.g. LGT Bank in Liechtenstein and its Members of the Board Berlusconi s Mediaset controlled by Fininvest (33%)

13 PEP Risk Management Framework Identification of New Customers (On-Boarding) Identification of Existing Customers Customer Risk Assessment Enhanced Due Diligence High Level Approval Enhanced Monitoring Periodic Review Exposure to PEP Risk across your portfolio Training and Education

14 PEP Declassification The level of inherent corruption risk in their country of political exposure The position held and its susceptibility to corruption or misappropriation of state funds or assets Length of time in office and likelihood of return to office in future The level of transparency about the source of wealth and origin of funds, in particular those funds generated as a consequence of office held Links to any industries that are high risk for corruption The overall plausibility of the stated customer profile and their net worth The level of transparency and plausibility of transactions processed through the account Whether there is relevant adverse information about the customer widely published in reputable sources How politically connected they remain once they have left office Once a PEP always a PEP, as a general rule, is not a good advice. How about the Clinton Foundation

15 PEP Screening When should you screen As part of the onboarding process At periodic customer review When there is a trigger event which warrants a customer due diligence review Whom should you screen Account holders Holders of Powers of Authority (or other means of control) Beneficial Owners Quality of Screening Data PEP List Providers

16 Conclusion The definition of a PEP should focus on those in senior, prominent political positions, who have substantial authority over policy, operations or the use or allocation of government-owned resources and are therefore more vulnerable to grand corruption the definition of a PEP should not be diluted by the inclusion of categories of natural persons who may exert considerable influence and are politically connected, but do not hold public office not all foreign PEPs are higher risk by definition while, under certain circumstances, relatives and close associates should be subjected to the same control framework as PEPs, they should not themselves be considered PEPs in all cases the principle of once a PEP, always a PEP runs counter to an appropriate RBA and should be considered very carefully before being applied regulatory requirements set out the need for reasonable risk-based measures for identifying PEPs, it is noted that while this may include automated screening, this is not necessary in all circumstances

17 Further Reading The Wolfsberg Group 2017 Wolfsberg Guidance on Politically Exposed Persons (PEPS)

18 Thank you Basel, October 2017 Hans-Peter Bauer Member of the Board Basel Institute on Governance Basel/Switzerland