FATF Guidelines for Politically Exposed Persons: Enhanced Due Diligence Measures
In an effort to combat money laundering and terrorist financing, the Financial Action Task Force (FATF) has issued guidelines recommending enhanced due diligence measures for financial institutions and designated non-financial businesses and professions (DNFBPs) dealing with higher-risk customers.
Recommendation 12: Domestic and International Organisation PEPs
The guidelines emphasize that financial institutions and DNFBPs should take reasonable measures to establish whether a customer or beneficial owner is a domestic/international organisation PEP. This involves reviewing CDD data collected pursuant to Recommendation 10, taking into account relevant risk factors.
Risk Assessment
If a customer is determined to be a domestic/international organisation PEP, financial institutions and DNFBPs should undertake a risk assessment of the business relationship. The assessment should consider various risk factors, including:
- Customer risk factors
- Country risk factors
- Product/service/transaction risks
- Additional factors such as the nature of the prominent public function held by the PEP
Enhanced Due Diligence Measures
If the risk assessment establishes that the business relationship with a domestic/international organisation PEP presents a higher risk, financial institutions and DNFBPs should take consistent measures to mitigate this risk. This may include:
- Obtaining additional information on the customer
- Conducting enhanced monitoring of the business relationship
- Identifying patterns of transactions that warrant additional scrutiny
Assessment of Customer Risk
Financial institutions and DNFBPs are required to assess the risk of the customer and business relationship based on the data collected pursuant to Recommendation 10. If a financial institution or DNFBP has no reason to believe that a customer is a domestic/international organisation PEP, it may not need to take additional measures at this stage.
Consistency in Approach
Financial institutions and DNFBPs should ensure consistency in their approach to dealing with higher-risk customers, including foreign PEPs. Low risk factors become irrelevant if the business relationship is high-risk, and financial institutions and DNFBPs should apply enhanced due diligence measures consistently to these customers.
Jurisdictional Variations
The guidelines recognize that jurisdictions may have different risk assessments for domestic/international organisation PEPs, and encourage countries to base their assessment of risks in accordance with their obligations under Recommendation 1. Financial institutions and DNFBPs are required to undertake their own assessment of the risk posed by these customers.
Summary
Financial institutions and DNFBPs dealing with higher-risk customers, including domestic/international organisation PEPs, must take reasonable measures to establish the source of wealth and funds, conduct enhanced monitoring of the business relationship, and identify patterns of transactions that warrant additional scrutiny. By implementing these guidelines, countries can help prevent money laundering and terrorist financing.