Politically Exposed Persons (PEPs) are more exposed to financial crimes by virtue of their status and can abuse their power for predicate offences.
Financial institutions in many countries, by law, treat PEP customers with an open-ended approach (i.e., “once a PEP – could always remain a PEP”). Maintaining a PEP classification ensures that clients are subject to continuous auditing throughout the business relationship. In other countries, after sufficient time has elapsed, the individual is removed from the PEP category and the entity in question is allowed to conduct a risk assessment that considers the following:
💡 What type of position did the PEP have?
💡 Does the customer still have influence and power due to the PEP position he held in the past?
💡 Are any risks associated with the PEP position held in the past? Financial oversight linked to PEPs tarnishes the reputation of financial institutions, resulting in fines or investigations for inadequate governance.
For instance, the Scottish Charity Regulator has opened several inquiries into the Prince of Wales’s Charitable Fund after media attention in 2022 highlighted the apparent incongruities in donations made to his charities. Prince Charles personally received bags of cash from the former Qatari prime minister and accepted a further generous donation from the Osama bin Laden family. These do not fall within the remit of the gift guidelines and procedures outlined on the official royal website because of money laundering regulations. Unlike other risks, PEPs’ involvement in financial crimes have more enduring and pervasive effects, representing a threat to the global financial system. Isabel dos Santos, daughter of the former Angolan president, was accused of profiting from her father’s kleptocracy and charged with multiple financial crimes, the proceeds of which may continue to be laundered through Europe’s financial sector.
PEPs have a duty as heads of state or prominent public functionaries to demonstrate correct management and good financial governance ensuring that public funds are received and spent efficiently. The enhanced due diligence required for PEPs aims to establish their finances are comprehensible, identifying their source of wealth and source of funds for example or whether their financial activity requires additional scrutiny, thus mitigating systemic vulnerabilities for the global financial system.
