Financial Crime World

Malta’s White Collar Crime Epidemic: Understanding Politically Exposed Persons

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The Risks of Dealing with Politically Exposed Persons (PEPs)

Despite common misconceptions, many individuals and organizations are still unaware of the significant risks associated with dealing with high-risk customers known as Politically Exposed Persons (PEPs). In this article, we will explore what PEPs are, how to identify them, and why they pose a significant risk for money laundering and terrorist financing (ML/FT).

Who Are Politically Exposed Persons?

According to the Financial Intelligence Analysis Unit (FIAU), a PEP is a natural person who holds or has held a prominent public function. This includes:

  • Heads of state
  • Government ministers
  • Members of parliament
  • Ambassadors
  • Other high-ranking officials

Additionally, family members and close associates of these individuals also pose a significant risk.

The Level of Risk Varies

Not all PEPs are created equal. The level of ML/FT risk depends on various factors, including:

  • Geographical links of the PEP
  • Type of public function held
  • Potential for the product or service to be misused

Enhanced Due Diligence Measures Are Essential

When dealing with PEPs, financial institutions and organizations must take enhanced due diligence measures to mitigate their exposure to ML/FT risks. This includes:

  • Obtaining senior management approval prior to onboarding
  • Conducting source of wealth and funds investigations
  • Implementing regular monitoring procedures

Ongoing Monitoring is Crucial

It is also essential for subject persons to keep in mind that customers who are not PEPs may become PEPs during the course of a business relationship. Therefore, ongoing monitoring and screening should be conducted to identify potential PEPs.

Conclusion

Dealing with Politically Exposed Persons requires a thorough understanding of their risks and consequences. By taking enhanced due diligence measures and conducting regular monitoring procedures, financial institutions and organizations can minimize their exposure to ML/FT risks and maintain a safe and compliant business environment.