Financial Crime World

High-Risk PEPs: A Growing Concern for Financial Institutions

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In the ongoing effort to combat money laundering and terrorist financing, financial institutions worldwide are being urged to implement enhanced customer due diligence programs (ECDD) for high-risk politically exposed persons (PEPs).

The Need for Enhanced Due Diligence

The Australian Transaction Reports and Analysis Centre (AUSTRAC) recommends that financial institutions consider former PEPs as high-risk customers and take additional steps to:

  • Verify their identity
  • Collect more information
  • Perform detailed analysis
  • Monitor transactions closely
  • Obtain senior management approval

However, not all countries have adopted the same approach. The United States, for example, has taken a different stance on PEPs, only requiring enhanced due diligence for Senior Foreign Political Figures.

US Approach to PEPs

The Financial Crimes Enforcement Network (FinCEN) has issued guidelines for financial institutions to follow when dealing with PEPs. The agency notes that family members and close associates of PEPs should also be considered high-risk due to the potential for abuse of their relationships.

FinCEN’s guidelines recommend a risk-based approach, taking into account factors such as:

  • Country of residence
  • Level of corruption
  • Source of wealth

Red Flags for Potential Schemes

To help financial institutions identify potential schemes, FinCEN has issued a list of red flags to look out for, including:

  • Use of third-party intermediaries
  • Inconsistent declarations
  • Attempts to obscure ownership

Alessa’s AML Compliance Tools

Alessa, an AML compliance tool provider, offers features to help financial institutions screen PEPs and take a risk-based approach to their relationships. The company’s platform allows users to:

  • Search for PEPs in native characters
  • Reduce false positives
  • Build custom risk models based on their organization’s risk appetite

Staying Ahead of the Curve

As the threat of money laundering and terrorist financing continues to evolve, it is essential for financial institutions to stay ahead of the curve by implementing robust PEP screening programs. With Alessa’s AML compliance tools, financial institutions can quickly and accurately identify high-risk PEPs and take targeted measures to mitigate their exposure.

Conclusion

In conclusion, high-risk PEPs present a significant challenge for financial institutions worldwide. By understanding the different approaches taken by countries and implementing robust screening programs, financial institutions can minimize their exposure to money laundering and terrorist financing risks.