Financial Crime World

Here is the converted article in Markdown format:

Financial Institutions Must Ensure Adequate Controls to Mitigate ML/TF Risk When Dealing with PEPs

======================================================

In an effort to prevent the misuse of financial institutions by Politically Exposed Persons (PEPs), the Financial Action Task Force (FATF) has issued guidelines emphasizing the importance of thorough due diligence and enhanced controls when dealing with PEPs.

Thorough Due Diligence Required

According to FATF Recommendation 12, financial institutions and Designated Non-Financial Businesses or Professions (DNFBPs) must have adequate risk management systems in place to determine if a customer or beneficial owner is a PEP. The guidelines stress that the assessment of risk should be based on the data collected during Customer Due Diligence (CDD), as required by FATF Recommendation 10.

Enhanced Due Diligence Measures for High-Risk PEPs

In cases where a PEP’s business relationship is deemed high-risk, financial institutions and DNFBPs must apply enhanced due diligence measures, including the collection of additional information about the PEP’s public functions, business model, and access to public funds. This assessment should take into account various factors, such as:

  • Customer risk
  • Country risk
  • Product, service, transaction, or delivery channel risks

Risk-Based Approach

The guidelines also emphasize that financial institutions and DNFBPs must not assume that all domestic/international organization PEPs pose the same level of risk. Instead, they must undertake their own assessments in accordance with FATF Recommendation 1 and communicate appropriate guidance to financial institutions and DNFBPs.

Statement from the FATF

“The risk-based approach requires financial institutions and DNFBPs to assess the risk posed by each customer relationship and apply enhanced due diligence measures accordingly. This ensures that high-risk customers are subject to the same level of scrutiny as foreign PEPs.”

Preventing Misuse of Financial Institutions

The guidelines are aimed at preventing the misuse of financial institutions by PEPs, who may be more susceptible to corruption and money laundering. By implementing these measures, financial institutions and DNFBPs can help maintain the integrity of the financial system and prevent illicit activities.

Key Takeaways

  • Financial institutions and DNFBPs must have adequate risk management systems in place to determine if a customer or beneficial owner is a PEP.
  • The assessment of risk should be based on data collected during CDD, as required by FATF Recommendation 10.
  • Enhanced due diligence measures are required for high-risk PEPs, including the collection of additional information about their public functions, business model, and access to public funds.
  • Financial institutions and DNFBPs must undertake their own assessments of risk in accordance with FATF Recommendation 1 and communicate appropriate guidance to financial institutions and DNFBPs.

Contact

[Name] [Email] [Phone]