Riskpro maintains one of the largest databases of more than 100,000 politically exposed persons (PEPs) from India. PEPs are individuals who currently hold or have previously held a prominent public position or function, exposing them to a higher risk of corruption or bribery. In the world of finance and anti-money laundering (AML) compliance, identifying and monitoring PEPs is crucial in preventing financial crimes.
This article will delve into the concept of PEPs, providing a comprehensive understanding of their definition, examples, identification, and classification. Furthermore, we will discuss the significance of identifying PEPs for AML compliance, including the risks associated with doing business with them and the measures required to mitigate those risks.
As an additional resource, we will also examine some insights into the Riskpro database on politically exposed persons, shedding light on the value of such databases in ensuring AML compliance.
History of PEP
The term “politically exposed person” was coined in the late 1990s during the “Abacha Affair,” when Sani Abacha, a Nigerian dictator, and his associates were involved in a massive theft of assets from the Nigerian central bank.
The funds, estimated to be several billion dollars, were transferred to bank accounts in Switzerland and the United Kingdom. In an effort to recover the money, the Nigerian Government lodged complaints with several European agencies, including the Federal Office of Police of Switzerland, which investigated close to sixty Swiss banks. During this investigation, the concept of a “politically exposed person” emerged, leading to the formation of a UN committee in December 2000. This was the trigger for the broader definition of this term.
Definition of a PEP
A Politically Exposed Person (PEP) is an individual who holds or has held a prominent public position or function, such as heads of state or government, senior politicians, high-ranking government officials, judicial or military officials, and executives of state-owned enterprises.
Riskpro, a company specializing in anti-money laundering compliance, compiles a database of individuals who have contested elections from more than 1,000 political parties in India. This database includes the heads of state or government such as Presidents, Prime Ministers, Chancellors, and Kings/Queens, as well as other politicians such as cabinet members, members of parliament, governors, MLAs, and mayors.
In addition, PEPs may also include their family members and close associates. This is because they may also have access to public funds or be involved in corrupt activities. Therefore, it is crucial for financial institutions to identify and monitor PEPs and their related persons to mitigate the risks associated with money laundering and terrorist financing.
Examples of PEPs
Besides those contesting elections, some examples of PEPs include
- high-ranking government officials such as Ministers, Ambassadors, and Senior Civil Servants, as well as judicial or military officials like Supreme Court Justices, Generals, and Admirals.
- Additionally, executives of state-owned enterprises such as CEOs, Directors, and Board Members can also fall under the category of PEPs.
It is important to note that the definition of a PEP may vary depending on the country or region. In India, Indiaforensic was the first to define politically exposed persons. Moreover, it is worth mentioning that even if an individual has left their public position or function, they may still be considered a PEP for a certain period of time, depending on the local regulations.
Identifying PEPs is crucial for financial institutions and other entities to mitigate the risks associated with money laundering and corruption. Therefore, a thorough understanding of PEPs and their classification is essential for effective anti-money laundering compliance.
PEP Databases
PEP databases are collections of information about Politically Exposed Persons (PEPs) that are used by financial institutions and other organizations to support their anti-money laundering (AML) compliance efforts. Riskpro compiles the PEP Database which typically contains information about individuals who contested political elections from a political party or hold public functions, such as government officials, judges, heads of law enforcement agencies, and high-ranking executives of Public Sector Undertakings.
PEP Database of Riskpro
PEP database compilation is a specialized task. Riskpro collects the data of politicians from various government sources and makes it available to financial institutions and other organizations as a service. These databases may include information such as the PEP’s name, position, Unique Identifier such as mobile number or Permanent Account Number, and other relevant details like constituency or relationship with the politician.
By consulting PEP databases, financial institutions, and other organizations can identify whether a customer or business associate is a PEP and assess the potential risks associated with that relationship. This information can inform the due diligence process and help organizations to determine whether enhanced due diligence is necessary or whether they need to take other measures to mitigate the risks posed by the PEP.
PEP APIs of Riskpro
The PEP Database maintained by Riskpro is a constantly evolving and up-to-date resource. With every election, the team conducts thorough research and analysis to identify and add newly-elected politically exposed persons to the database. This ensures that the database remains current and relevant, and enables banks to access the latest information on PEPs.
Riskpro offers the PEP database in various formats to suit the needs of different banks. One such format is the API, which allows banks to seamlessly integrate the PEP database into their own systems and applications. This integration helps banks to effectively screen their customers against the database in real-time, thereby reducing the risk of exposure to financial crimes and ensuring compliance with regulations. By using the PEP database, banks can better manage their risks and safeguard their reputation in the market.
It is important to note that PEP databases are not foolproof and may not always be up-to-date or accurate. Therefore, it is important for financial institutions and other organizations to use PEP databases in conjunction with other risk management measures, such as ongoing monitoring and regular assessments of their AML compliance programs.
Identification of PEPs
Identifying PEPs is a crucial part of Anti Money Laundering compliance. Financial institutions can identify PEPs by using various sources, including:
- Publicly available information such as media reports and government websites
- Commercial databases that specialize in PEP identification. Riskpro is one of the most authentic providers of PEP information in India
It is important to note that not all PEPs will be immediately obvious. Some individuals may not disclose their public position or function, or their family members or associates’ connections to PEPs.
Classification of PEPs
Politically Exposed Persons (PEPs) can be classified into two main categories: domestic PEPs and foreign PEPs. Domestic PEPs are individuals who currently hold or have previously held prominent public positions or functions within the same country as the financial institution. Foreign PEPs are individuals who currently hold or have previously held prominent public positions or functions in other countries.
Foreign PEPs are considered to pose a higher risk due to the potential for money laundering through international transactions.
PEP Identification in Crypto World
With the growth of cryptocurrency exchanges, identifying Politically Exposed Persons has become more challenging due to the anonymous nature of cryptocurrencies. In traditional financial institutions, PEPs are identified through their public office or political status, but in cryptocurrency exchanges, they can hide behind pseudonyms or fake identities. Moreover, some cryptocurrency exchanges may not have adequate measures in place to perform due diligence and identify PEPs, making it easier for them to conduct transactions without detection.
To mitigate the risk associated with PEPs, enhanced due diligence is necessary for every PEP who wishes to open a bank account. This process helps financial institutions to identify and assess the level of risk posed by PEPs and to ensure that appropriate measures are taken to prevent money laundering and terrorist financing. By implementing enhanced due diligence procedures, financial institutions can strengthen their AML compliance programs and safeguard against financial crimes.
Enhanced Due Diligence on Politically Exposed Persons
The implementation of enhanced due diligence procedures is a crucial step in strengthening AML compliance programs and safeguarding against financial crimes. By carrying out enhanced due diligence on Politically Exposed Persons, financial institutions can gain a deeper understanding of their customers and assess the level of risk they pose. This allows institutions to tailor their risk mitigation measures and take appropriate action to prevent money laundering and terrorist financing.
Enhanced due diligence procedures may involve a range of measures, such as conducting in-depth background checks, verifying sources of wealth, monitoring transactions more closely, and obtaining additional documentation or information. These measures can help institutions to identify potential red flags and take action to prevent illicit activities from occurring.
Financial institutions that fail to implement adequate enhanced due diligence procedures for PEPs risk facing serious consequences, including regulatory penalties, reputational damage, and the possibility of facilitating financial crimes. It is therefore essential for institutions to prioritize enhanced due diligence as part of their overall AML compliance program and to continually update and refine their procedures to stay ahead of evolving risks and threats.
Penalties for non-compliance with PEP Norms
Riggs Bank was fined for PEP-related non-compliance. In 2004, Riggs Bank was fined $41 million by the U.S. Office of the Comptroller of the Currency (OCC) and the Financial Crimes Enforcement Network (FinCEN) for failing to implement an effective anti-money laundering program, including inadequate due diligence on PEPs, which led to the bank’s involvement in money laundering activities related to Augusto Pinochet, the former dictator of Chile, and the government of Equatorial Guinea.