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PEPs: What You Need to Know
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As a service provider, it’s essential to identify Politically Exposed Persons (PEPs) or their direct family members or close associates when conducting customer due diligence (CDD). But what happens after you’ve identified them? Here are some key guidelines from the Aruba AML/CTF State Ordinance and FATF recommendations.
Monitoring Business Relationships
Once you’ve identified a PEP, it’s crucial to conduct ongoing monitoring of your business relationship with them. This includes tracking fund transfers to their accounts or those of their close associates. Be alert for transactions that may include bribes or proceeds from illicit activity.
Risk-Based Approach
Service providers should establish internal procedures for ongoing monitoring in a risk-based manner. The level of risk varies depending on factors such as the PEP’s country of origin, industry sector, and account purpose. For example:
- A private banking account opened by a head of state’s wife with large sums of money may pose a higher risk than an ordinary payment account held by the parents of a foreign central bank official.
PEP Status
According to Article 12, paragraph 2, of the AML/CTF State Ordinance, a service provider must consider a customer or Ultimate Beneficial Owner (UBO) a PEP up to five years after they cease occupying a prominent public position. This applies equally to their close associates.
Simplified CDD Measures
Service providers governed by the AML/CTF State Ordinance or equivalent legislation can apply simplified CDD measures for customers with a specific legal status. However, gathering sufficient data is essential to assess whether a customer meets the requirements for a simplified CDD regime.
Monitoring Simplified CDD Measures
Even when applying simplified CDD measures, monitoring of business relationships is always necessary to assess whether the account is indeed used for its intended purpose. If suspicious activity arises, a full CDD review must be performed.
Purpose and Intended Nature of Transactions
As part of basic CDD measures, service providers are obliged to assess the purpose and intended nature of the business relationship. By gathering information about the purpose and expected business activity, you can estimate possible risks and identify patterns of expected transactions within the business relationship.
Conclusion
Stay vigilant, and remember that a risk-based approach is crucial when dealing with PEPs. Always prioritize due diligence and ongoing monitoring to ensure compliance with AML/CTF regulations.