Banks Must Conduct Risk-Based Due Diligence on Politically Exposed Persons

Emphasis on Combating Money Laundering and Financial Crimes

In a move to combat money laundering and other financial crimes, the United States is emphasizing the importance of risk-based customer due diligence (CDD) procedures for banks. The CDD rule requires banks to understand the nature and purpose of customer relationships in order to develop a customer risk profile and conduct ongoing monitoring to identify and report suspicious transactions.

Risk-Based Customer Due Diligence

The rule does not impose unique due diligence requirements on customers who are considered Politically Exposed Persons (PEPs). Instead, it allows banks to determine whether a customer is a PEP at account opening if the bank determines that such information is necessary for developing a customer risk profile.

Factors to Consider When Assessing Risk

When determining the level of risk associated with a PEP customer relationship, banks may consider various factors, including:

• The public office or position of trust held by the individual
• Any indication that they may misuse their authority or influence for personal gain
• Existing processes for assessing geographic-specific money laundering and corruption risks when developing the customer risk profile

Ongoing Risk-Based Monitoring

The CDD rule requires banks to conduct ongoing risk-based monitoring to identify and report suspicious transactions. In the case of PEP customers, this may involve periodic reviews as part of the bank’s overall risk management strategy.

Not All PEPs Are High-Risk

Not all PEPs are high-risk, however. The level of risk depends on specific facts and circumstances, such as:

• Transaction volume
• Account activity
• The individual’s public office or position of trust

Banks must assess these factors to determine whether a customer relationship poses a higher level of risk.

Conclusion

By adopting appropriate risk-based procedures for conducting CDD, banks can effectively identify and report suspicious transactions, while also complying with regulatory requirements. The Agencies recognize that PEP relationships present varying levels of money laundering risk, and those risks depend on the presence or absence of numerous factors.

In conclusion, addressing the money laundering threat posed by public corruption of foreign officials continues to be a national security priority for the United States. Banks are reminded of their obligation to identify and report suspicious activity, including transactions that may involve the proceeds of corruption. By conducting risk-based due diligence on PEP customers, banks can play an important role in combating financial crimes and maintaining the integrity of the global financial system.