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FATF Issues Guidance on Politically Exposed Persons (PEPs) for Higher Risk Customers

The Financial Action Task Force (FATF) has issued guidance on politically exposed persons (PEPs) for higher risk customers to combat money laundering and terrorist financing.

Enhanced Due Diligence Measures

Financial institutions and designated non-financial businesses and professions (DNFBPs) are recommended to take a more proactive approach when dealing with PEPs who are considered higher risk. This includes implementing enhanced customer due diligence (CDD) measures to determine the source of wealth and funds, as well as conducting regular monitoring of business relationships.

Risk-Based Approach

Financial institutions and DNFBPs should assess the risk of each customer and business relationship based on relevant factors such as:

  • Customer risk factors
  • Country risk factors
  • Product or service risks

If a PEP is determined to be a higher risk, then enhanced due diligence measures should be taken, including obtaining additional information on the customer and the source of their wealth and funds.

Domestic and International Organization PEPs

Financial institutions and DNFBPs should take a risk-based approach when dealing with domestic and international organization PEPs. This means assessing the risk of each business relationship and taking appropriate measures to mitigate that risk.

Communication

The guidance emphasizes the importance of communicating the appropriate guidance to financial institutions and DNFBPs in jurisdictions where PEPs are considered higher risk.

Key Recommendations

  • Take a proactive approach when dealing with PEPs who are considered higher risk.
  • Implement enhanced CDD measures to determine the source of wealth and funds.
  • Conduct regular monitoring of business relationships.
  • Take a risk-based approach when dealing with domestic and international organization PEPs.
  • Assess the risk of each customer and business relationship based on relevant factors.

Conclusion

The FATF guidance on PEPs for higher risk customers is an important step in combating money laundering and terrorist financing. By implementing enhanced due diligence measures and taking a risk-based approach, financial institutions and DNFBPs can help to mitigate the risks associated with dealing with PEPs. Jurisdictions should also communicate the appropriate guidance to financial institutions and DNFBPs to ensure that they are aware of the risks and take appropriate measures to mitigate them.