In the 2007 regulations we are specifically required on a risk sensitive basis to find out if we have a foreign PEP` as a client. The Regulations under S18 also requires the firm on a risk sensitive basis to ensure they are not dealing with firms or individuals on the HM Treasury Sanctions listings.
Being a PEP means that the risk to the firm from money laundering is higher and must be compensated for. People listed on the sanctions lists must not be dealt with at all by a compulsion of law. These include known financiers of terrorist organisations.
What is a PEP? The following definition is taken directly from the European Third Directive and is transposed directly into the UK ML Regulations:
“politically exposed persons” means natural persons who persons in the previous twelve months are or have been entrusted with prominent public functions and their immediate family members, or persons known to be close associates, of such”
It is not just the person but also spouses, children and their spouses, their parents, people in a relationship with and business partners of that person who are listed.
The guidance example is that all firms should have a policy stated for this scenario linked to the risk assessment. Large firms who have a potentially high risk of these types of client such as private and high street banks will have electronic systems in place which will carry out this procedure as standard. For the vast majority, which includes the smaller business, a common sense and judgmental approach linked to normal client due diligence, KYC and risk assessment should be employed. Meaning that while we are performing our account opening procedures we have a client with a sufficiently high enough risk to warrant further research, it is these people only who would require further enquiries to be made.
Though we are not obligated under law to ascertain in low risk circumstances whether we are dealing with a PEP, it would be advisable for best practice purposes to carry out some basic method of enquiry on all clients. This could take many simple forms from the search of public knowledge through a ‘google’ or other internet search engine, local personal knowledge or simply by enquiring of the client directly when gathering KYC background information.