Financial Crime World

Financial Institutions Urged to Take Extra Precautions When Dealing with Politically Exposed Persons

Combating Money Laundering and Terrorist Financing

The Bank of Italy has issued guidelines recommending enhanced customer due diligence procedures for credit and financial institutions dealing with Politically Exposed Persons (PEPs) in an effort to combat money laundering and terrorist financing.

Definition of PEPs

According to Italian law, PEPs are defined as a wide range of individuals who hold significant public office or are close associates of such individuals. This includes:

  • Heads of state
  • Government officials
  • Members of parliament
  • Others

Guidelines for Financial Institutions

The Bank of Italy’s guidelines emphasize the importance of:

  • Obtaining senior management approval before establishing or continuing business relationships with PEPs
  • Taking adequate measures to establish the source of wealth and source of funds involved in these transactions
  • Conducting enhanced ongoing monitoring of business relationships and professional services with PEPs

Enhanced Ongoing Monitoring

To achieve this, financial institutions should:

  • Implement a policy for managing money laundering and terrorism financing risks
  • Assess whether clients are PEPs through further research beyond just business databases
  • Adopt an automatic ranking system to identify high-risk individuals

Procedures for Enhanced Customer Due Diligence

The guidelines also stress the importance of having clear procedures in place for each phase of enhanced customer due diligence, including:

  • Documentation requirements: Providing lists of client information to be collected at the beginning of relationships with PEPs
  • Ongoing monitoring: Implementing a policy for managing money laundering and terrorism financing risks

Recommendations for Financial Institutions

Financial institutions operating in Italy are urged to:

  • Promptly review their AML policies, procedures, and systems to ensure they meet the recommended “good practice” standards
  • Implement these guidelines to help prevent the misuse of PEPs for illegal activities and maintain public trust in the financial system.