What is a PEP?

In financial regulation, a politically exposed person is one who has been entrusted with a prominent public function. A PEP generally presents a higher risk for potential involvement in bribery and corruption by virtue of their position and the influence that they may hold. (source: Wikipedia)

How does one become a PEP?

Once a person meets the definition of a PEP, a person is a PEP. The PEP database is updated weekly with this public information

Are there any patterns of corrupt PEP relationships?

The actual power structures in a country depend on who defines the rules of the game—the institutions or the acting persons. If institutions are only empty shells, the focus should be on the behaviour of the political elite, i.e. the PEPs and their informal relationships amongst each other. In these instances it is important to understand what kind of relationship patterns one is dealing with and what these relationship patterns say about the type and extent of political corruption in a country. Research on corruption distinguishes four so-called syndromes of political corruption.
This approach will be introduced here, as it can assist in matching the situation in a certain country with these four types. This in turn helps to understand the risks of money laundering or corruption with which a foreign financial institution or corporation is confronted. The following relationship patterns are ideal types. When undertaking the specific country analyses there are likely to be variants and hybrids.

Who to check and when to check

The primary key for institutions is the expectancy of identifying the PEPs before establishing a business relationship as well as ongoing monitoring of existing clientele to ensure funds managed on their behalf do not derive from a corrupt source. While there is no global definition of a PEP, the Financial Action Task Force (FATF) has issued guidelines. Local legislation such as the USA PATRIOT Act and the
European Union Directive use similar definitions of a PEP, typically consisting of the following five layers:

  1. Current or former senior official in the executive, legislative, administrative, military, or judicial branch of a government
    (elected or not)
  2. A senior executive of a government owned commercial enterprise, and/or being a corporation, business or other entity formed
    by or for the benefit of any such individual
  3. Any individual publicly known (or actually known by the relevant institution) to be a close personal or professional associate
  4. A senior official of a major foreign political party
  5. An immediate family member of such individual; meaning spouse, parents, siblings, children, and spouse’s parents or siblings

Which countries does the PEP Caribbean database cover?

The six islands of the Former Netherlands Antilles: Aruba, Bonaire, Curacao, St Maarten, Saba & St Eustatius.

How long is a PEP considered a PEP?

FATF Recommendation 12 defines a PEP as being someone who has been (but may no longer be) entrusted with a prominent public function.    The language of Recommendation 12 is consistent with a possible open-ended approach (i.e. “once a PEP–could always remain a PEP”). The handling of a client who is no longer entrusted with a prominent public function should be based on an assessment of risk and not on prescribed time limits. The risk-based approach requires that financial institutions and DNFBPs assess the ML/TF risk of a PEP who is no longer entrusted with a prominent public function, and take effective action to mitigate this risk.
Possible risk factors are:

  • the level of (informal) influence that the individual could still exercise; the seniority of the position that the individual held as a PEP; or
  • whether the individual’s previous and current function are linked in any way (e.g., formally by appointment of the PEPs successor, or informally by the fact that the PEP continues to deal with the same substantive matters

Aruba law: 5 year term, BES islands law , 1 year term and for Curacao en St Maarten it is based on above mentioned

What is the risk assessment guideline in dealing with PEPs?

The Financial Action Task Force’s 40 Recommendations on Money Laundering states that financial institutions should, in relation to PEPs both foreign and domestic:

  • have appropriate risk-management systems to determine whether the customer is a PEP;
  • obtain senior management approval for establishing business relationships with such customers;
  • take reasonable measures to establish the source of wealth and source of funds; and \
  • conduct enhanced ongoing monitoring of the business relationship.

In our local laws at least the same is applicable.

What is the minimum baseline of control for financial institutions to check if customers are PEPs?

According to the Wolfsberg Group, a wide range of controls may be considered for the identification and management of PEP relationships, but not all will be appropriate for application across an institution’s entire range of business. For example, in retail banking relationships, a different balance of controls may be relevant than those considered appropriate within a private banking/wealth management environment.

  • New client approval – Institutions should have reasonable procedures designed to identify PEPs either before the relationship is established or shortly thereafter, where permitted under applicable law. While basic client relationships are typically subject to standard
    due diligence during the approval process, PEP relationships should be escalated for approval by Senior management.
  • Identification of existing clients – When an institution becomes aware that an existing client has become a PEP, it should apply appropriate enhanced procedures and controls and notify senior management.
  • Enhanced due diligence – Once identified and depending on the product or service sought, additional research and analysis may be appropriate including validation of information provided for a number of factors including an understanding of the individual’s source of funds and wealth.
  • Enhanced monitoring – Accounts with a PEP relationship should be subject to enhanced monitoring to detect unusual and potentially
    suspicious activity.
  • Review existing PEP clients – Such relationships should be subject to periodic review to ensure that due diligence information remains current and the risk assessment and associated controls remain appropriate. Senior management should approve these reviews.

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