The Wolfsberg Group (the Group) has published updated guidance as to how financial institutions should handle the money laundering risks posed by politically exposed persons (PEPs). This updates the guidance that the Group initially issued in 2003 and the FAQs issued in 2008.
The updated guidance lays out what the Wolfsberg Group considers to be the most effective way of managing PEP risk, which is to position the PEP control framework as part of the risk based approach to the identification and management of financial crime risk, specifically as part of a holistic customer risk assessment process. The guidance provides advice to financial institutions on how to achieve that and how to subject customers who may be politically exposed to a more tailored and risk based control framework.
In terms of appropriate management of PEP risk, the Group reiterates key notions:
- the definition of a PEP should focus on those in senior, prominent political positions, who have substantial authority over policy, operations or the use of 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 risk based approach and should be considered very carefully before being applied; and
- 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.
While the Group has not highlighted further areas for improvement in its guidance paper, it has long held and communicated views as to how further cooperation and a joined up multi-stakeholder approach would help in combatting corruption even further. Such action could include:
- governments to issue PEP lists relevant to their jurisdictions, clearly articulating any expectations with respect to the holdings of their PEP population, as well as requirements relating to disclosures of foreign accounts and assets. More broadly government should also ensure that anti-corruption measures are strengthened;
- reputable media and non-governmental organisations to highlight the most corrupt countries, regimes and those where credible evidence of corruption exists, making that information publicly available;
- law enforcement to increase prosecutions, civil forfeiture actions or similar, including implementing tools to seize assets, for examples, unexplained wealth order type tools to increase the level of assets seized. In enhancing these tools, they could share typologies and insights on the evolving nature of the risks and how the laundering of corrupt funds is being undertaken;
- regulators to adopt a more risk based approach to the way they assess financial institutions’ PEP regimes, ensuring that this is not a ‘tick box exercise’ but an appropriate evaluation of whether financial institutions are assessing and managing risks of senior, important and prominent PEPs; and
- policy makers to bring greater clarity to these objectives for PEP regimes and identify where resources are most needed to achieve those objectives. This includes solid frameworks for cooperation and information sharing between law enforcement and the private sector, where information sharing amongst financial institutions, with appropriate safeguards, should also be considered.
View Wolfsberg Group guidance on PEPs, 23 May 2017