A PEP poses a higher risk of money laundering or terrorist activity financing. Therefore, financial institutions must determine whether potential customers are PEPs and, if so, exercise additional due diligence. Being a PEP does not mean that the person has been involved in illegal activities, but special care must be taken when verifying the person and transactions. Initially, bodies such as the FATF defined PEPs as foreign civil servants, i.e. persons entrusted by a foreign country with important public functions. Recognizing the challenge of fighting “national” and global corruption, many governments have followed the FATF`s lead and expanded the definition to include domestic and international civil servants. To make matters even more difficult, definitions also differ from jurisdiction to jurisdiction as to what constitutes a senior official. Companies should ensure that their definition of the term is broad enough to cover all relevant roles and positions, as well as family members and close associates. In financial regulation, a politically exposed person (PEP) is a person who has been entrusted with an important public function. A PEP generally presents a higher risk of possible involvement in bribery and corruption because of its position and influence. The terms “politically exposed person” and “high-ranking foreign political figure” are often used interchangeably, particularly in international forums.
Foreign Official is a term for individuals who are considered members of government under the Foreign Corrupt Practices Act (FCPA), and while the definitions are similar to those in the PEP, there are some differences and they should not be used interchangeably. The term “PEP” is generally used to refer to clients in the financial services sector, while the term “foreign agent” refers to the risks associated with relationships with third parties in all sectors. The Financial Action Task Force (FATF) first defined the term PEP in 2003 as “persons who are or have been entrusted with important public functions at the national level, such as Heads of State or Government, high-ranking politicians, senior government officials, judicial or military, senior managers of state-owned enterprises, the important leaders of political parties”. EPP terminology is used to describe a person who could pose a higher risk and face potential acts of bribery or corruption, given the power and influence they can wield. This applies in particular to high-level politicians with influence over legislative procedures or to persons with decision-making power in procurement processes. A pioneering definition was the OECD Convention on Combating Bribery in Developing Countries, which entered into force in February 1999. He used the term “foreign official.” Family members and close associates are the immediate family members of a PEP and their closest non-family collaborators. Although some guidelines are contained in some international and national regulations, the FATF does not define the scope of the terms family members and close associates, as this depends to some extent on the socio-economic and cultural structure of the PEP country. The Financial Action Task Force (FATF) then codified the term in its anti-money laundering guidelines and established the following 3 classifications of PEPs: The European Union defined the notion of politically exposed person in Directive 2006/70/EC[7], which was subsequently replaced by Directive 2015/849 (Article 3, paragraph (9). [8] Following the imposition of Hong Kong`s National Security Law by the Standing Committee of the National People`s Congress of the PRC in June 2020, the review of PEPs in some banks “involved sifting through customer and employee feedback in the public and media, as well as recent social media posts.” The new law “prohibits what Beijing generally describes as secession, subversion, terrorism and collusion with foreign forces,” with maximum sentences up to life in prison.
HSBC, Credit Suisse, Julius Baer and UBS declined to comment to The Daily Telegraph on a July 20 press report. Pro-democracy lawyer Albert Ho said he feared “people like him” “may face difficulties in the time ahead.” There`s actually not much you can do if you don`t stop all your financial and banking activities in Hong Kong. [15] In the context of compliance with anti-money laundering and combating the financing of terrorism (TF) regulations, PEPs present a higher risk of involvement in corruption and money laundering. The term PPE is defined in Article 4, 28° of the Anti-Money Laundering Act as a natural person who is or has been entrusted with important public functions. It is important for financial institutions to conduct customer due diligence to determine a customer`s PEP status and accurately determine the level of risk they pose. Accordingly, firms should assess new customers when onboarding under the FATF`s recommended risk-based approach to anti-money laundering. PEP status also extends to relatives and close associates. Parents and close associates include a spouse, partner, children and their spouses or partners and parents. While other family members may not fall within this definition, it may be appropriate to consider that other family members may also be used as a front for corrupt activities. It may therefore be appropriate to apply the definition to other broader family members who may have increased risk factors and to apply the requirements of the regulation (e.g., a PEP containing material negative information may use its brother as a cover for the treatment of its proceeds of corruption). Close associates include any person known to have joint beneficial ownership of a legal entity or arrangement or other close business relationship. This includes any natural person who has exclusive beneficial ownership of a legal person or legal arrangement known to have been established for the benefit of a person covered by the Regulations.
The key to effective implementation of Recommendation 12 is the effective implementation of customer due diligence: financial institutions need to know who their customers are. There are external sources of information to identify PEPs, such as commercial and other databases, and the document provides guidance on the use of these and other external sources of information. However, these databases are not sufficient to meet the requirements of the PEP, nor does the FATF require the use of such databases. The term “politically exposed person,” sometimes used interchangeably with “high-ranking foreign political figure,” emerged in the late 1990s in the wake of the Abacha affair: a money laundering scandal in Nigeria that spurred global efforts to prevent abuse of the financial system by political figures. The term foreign agent has been used by U.S. law enforcement agencies to refer to individuals who exhibit characteristics similar to PEPs, as noted in the U.S. Foreign Corrupt Practices Act 15 U.S.C. § 78dd-1. It is used in all industries, not just by financial institutions. The Treasury`s Financial Crimes Enforcement Network (FinCEN) stopped using the term PEP in its regulations as of 2010. [13] In the event of suspicious activity, a financial institution must submit a suspicious transaction report to FinCEN. The term “high-ranking foreign policy figure” within the meaning of Section 312 of the USA PATRIOT Act is broadly similar to the definition of PEP and also excludes average or younger people.
[ref. needed] The term PEP is recognized (and defined) by the Wolfsberg Group of eleven global banks. [14] The Financial Conduct Authority and the Joint Money Laundering Steering Group publish detailed guidance on PEPs and other KYC-related issues to help companies comply with their legal obligations. [11] As recommended in FATF Recommendation 10, effective customer due diligence should be exercised to determine whether the beneficial owner of an entity is a PEP or whether an individual can be identified as a PEP.