Investigating the Source of Funds: A Critical Step Before Accepting PEPs

In today’s globalized economy, financial institutions face the challenge of identifying and verifying the source of funds for high-risk customers, including Politically Exposed Persons (PEPs). These individuals pose a higher risk to the financial system due to their position and influence.

The Importance of Senior Management Involvement

It is crucial that banks take a proactive approach in investigating the source of funds before accepting PEPs as customers. This includes conducting thorough customer due diligence, verifying identity, and assessing the risks associated with the relationship. The decision to open an account for a PEP should be taken at a senior management level. Banks must have clear policies and procedures in place for handling these high-risk customers, and senior managers must be aware of the risks and take steps to mitigate them.

Non-Face-to-Face Customers: A Growing Concern

The rise of electronic banking has led to an increase in non-face-to-face customers, making it more challenging for banks to verify identity and source of funds. Banks should apply equally effective customer identification procedures for non-face-to-face customers as they do for those available for interview.

Mitigating Risk

To mitigate the risks associated with PEPs and non-face-to-face customers, banks can implement various measures:

• Certification of documents presented
• Requisition of additional documents to complement those required for face-to-face customers
• Independent contact with the customer by the bank
• Third-party introduction, such as through an introducer subject to established criteria
• Seeking verification of the source of funds for the initial deposit, including sightseeing documentary evidence confirming the source

Conclusion

In conclusion, investigating the source of funds is a critical step in the onboarding process for PEPs and high-risk customers. Banks must take a proactive approach in verifying identity and assessing risks to ensure compliance with anti-money laundering regulations. Senior management involvement, clear policies and procedures, and effective risk management are essential components of this process.

By implementing these measures, banks can reduce the risk of money laundering and terrorist financing, while also maintaining a robust and compliant financial institution.