International Banks Urged to Verify Identity of Beneficiaries and Politically Exposed Persons

The Reserve Bank of Vanuatu has issued a new prudential guideline for international banks operating in the country, emphasizing the need for strict due diligence measures when dealing with beneficiaries and politically exposed persons (PEPs).

Due Diligence Measures

According to the guideline, international banks must ensure that intermediaries they work with are subject to equivalent due diligence standards and anti-money laundering (AML) requirements. If not, the bank should not permit the intermediary to open an account.

• Intermediaries must be subject to equivalent due diligence standards and AML requirements
• Banks should not permit intermediaries to open an account if they do not meet these standards

Risks Associated with Politically Exposed Persons (PEPs)

The guideline highlights the risks associated with business relationships with PEPs, such as:

• Heads of state or government
• Senior politicians
• Senior executives of publicly owned corporations

Accepting funds from corrupt PEPs can damage a bank’s reputation and lead to costly information requests and seizure orders from law enforcement authorities.

Mitigating Risks

To mitigate these risks, international banks are advised to:

• Gather sufficient information about new customers, including PEPs
• Investigate the source of their funds before accepting them as clients
• Take a decision to open an account for a PEP at a senior management level

Identifying and Verifying Non-Face-to-Face Customers

The guideline also emphasizes the importance of identifying and verifying non-face-to-face customers, such as those conducting electronic banking via the internet or similar technology. International banks are advised to apply equally effective customer identification procedures and ongoing monitoring standards for non-face-to-face customers as for those available for interview.

Correspondent Accounts

Correspondent accounts that involve services in jurisdictions where the respondent banks have no physical presence also require particular care, according to the guideline. International banks must ensure that they apply an appropriate level of due diligence to such accounts to prevent money laundering and terrorist financing.

Implementation

The Reserve Bank of Vanuatu is urging international banks operating in the country to take these guidelines seriously and implement robust risk-based systems and controls to mitigate the risks associated with beneficiary identification, PEPs, non-face-to-face customers, and correspondent banking.