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Article
Publication date: 20 July 2022

Nasir Sultan and Norazida Mohamed

This study aims to evaluate and investigate the existing process of establishing a banking relationship with politically exposed persons.

Abstract

Purpose

This study aims to evaluate and investigate the existing process of establishing a banking relationship with politically exposed persons.

Design/methodology/approach

This study used qualitative techniques of semi-structured interviews with senior compliance officers of financial institutes in Pakistan.

Findings

This study found that the existing mechanism of identification and verification of politically exposed persons (PEPs) is ineffective. Financial institutes face challenges like the quality of name screening data sets, cost of identification and verification, role and control of the regulator, the influence of politically exposed persons, the opaqueness of laws and international connections of the politically exposed persons. Further, financial Institutes are burdened by regulators to perform robust PEP customer due diligence but do not guide and provide the right tools.

Originality/value

This paper aims to find challenges faced by financial institutes before onboarding the PEPs. Further, very limited studies on this topic have been conducted in Pakistani context.

Details

Journal of Money Laundering Control, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1368-5201

Keywords

Article
Publication date: 7 May 2019

Daniele Canestri

This paper aims to address the money laundering risk posed by politically exposed person’s (PEP’s) controlled legal entities. International standards and national…

1057

Abstract

Purpose

This paper aims to address the money laundering risk posed by politically exposed person’s (PEP’s) controlled legal entities. International standards and national legislation require enhanced due diligence of political office holders but no specific requirements exist on entities controlled by PEPs. While regulators expect the stringent AML risk mitigation regarding this type of entities, financial institutions have no guidelines to follow. This gap produces inconsistent due diligence measures applied to entities with significant PEPs’ connection.

Design/methodology/approach

The paper uses comparative analysis to identify discrepancies between legal requirements and their interpretation. Moreover, an empirical approach results in a standardised solution to address these discrepancies.

Findings

The paper defines the concept of politically exposed entities and the applicable due diligence framework. Anticipating legislative measures, it proposes to introduce this concept via best practices of financial institutions and private banking initiatives such as the Wolfsberg Group.

Research limitations/implications

The research addresses the topic from a legal point of view. However, the implementation of proposed ideas depends on decisions which are political by nature and are not within the scope of this paper.

Practical implications

The paper aims at stimulating a debate in both the private and public sector to form a consistent approach to AML due diligence of legal entities associated to PEPs.

Originality/value

This paper responds to an identified need to study how legal entities connected to PEPs should be defined and monitored.

Details

Journal of Money Laundering Control, vol. 22 no. 2
Type: Research Article
ISSN: 1368-5201

Keywords

Article
Publication date: 2 July 2018

Francesco Falco

The purpose of this paper is to provide guidelines and inputs for the implementation of policies and procedures governing transactions and business relationships with…

161

Abstract

Purpose

The purpose of this paper is to provide guidelines and inputs for the implementation of policies and procedures governing transactions and business relationships with politically exposed persons (PEPs) under the anti-money laundering (AML) legal framework.

Design/methodology/approach

This paper reviews AML PEPs’ regime in the perspective of the European Union Directive (EU) 2015/849 of May 20, 2015; the Italian Legislative Decree no. 231 of November 21, 2007; and the “good practice” recommendations issued by the Bank of Italy. In particular, it provides an overview of EU and Italian legislation in connection with PEPs and describes “good practice” recommendations provided by the Bank of Italy to implement policies and procedures to properly perform transactions with PEPs and comply with AML legislation.

Findings

Bank of Italy’s “good practice” recommendations are an important tool for credit and financial institutions managing transactions and business relationships with high-risk counterparties such as PEPs. They shall help determine how to properly implement policies and procedures for an enhanced identification and verification of PEPs.

Originality/value

This paper provides useful information on how to draft policies and procedures in order to be compliant with AML legislation related to PEPs.

Article
Publication date: 23 July 2020

Joel Harry Clavijo Suntura, Piedad Maribel Rosero Rosero and Gloria Esperanza Aragón Cuamacás

The purpose of this paper is to analyze politically exposed persons (PEPs) according to Financial Action Task Force (FATF) Recommendations and assess the identification…

Abstract

Purpose

The purpose of this paper is to analyze politically exposed persons (PEPs) according to Financial Action Task Force (FATF) Recommendations and assess the identification process followed by financial institutions to create a harmonized regional model for PEPs identification in Latin America.

Design/methodology/approach

FATF Recommendation No.12 states that financial institutions should identify PEPs. To do so, the latter uses either an internal identification system or an external database. Within this framework, the purpose of the research work is to determine whether the procedure adopted by the regulated entities complies with the requirements of the regulations. Both analytical and interpretative methods have been used for this purpose.

Findings

In accordance with FATF Recommendation No.12, national and foreign PEPs, as well as officials of relevant international organizations, close relatives and closest associates must be identified. This wide range of people forms an hybrid type of PEPs. Because of the lack of a harmonized identification policy, it is likely that some people who meet these conditions may not be spotted.

Originality/value

PEPs control success relies on accurate and prompt identification. Therefore, it is crucial to create an inter-state model of harmonized identification at a regional level in Latin America. It includes not only the participation of the obligated subjects but also the sector entities associated to the concerned economic activity.

Details

Journal of Money Laundering Control, vol. 24 no. 2
Type: Research Article
ISSN: 1368-5201

Keywords

Article
Publication date: 7 January 2014

Spyridon Repousis

The purpose of this paper is to examine politically exposed persons and major Greek political parties' funding sources as well as the anti-money laundering regulatory…

635

Abstract

Purpose

The purpose of this paper is to examine politically exposed persons and major Greek political parties' funding sources as well as the anti-money laundering regulatory framework for political parties' funding sources.

Design/methodology/approach

This paper aimed at investigating data about Greek political parties' funding by identifying new problems and developing solutions.

Findings

The main findings are that Greek political parties' major sources of revenues are public subsidies and bank loans. Also, data show that two major Greek political parties cannot easily repay their bank loans (especially PASOK) and must renegotiate terms with banks and must agree for a new, long-term and lower payment schedule at a lower interest rate. Extending the period of repayment is necessary for viability of debts, and banks will protect themselves against default and total losses of about 253.1 million euros from the two major political parties. Public subsidies are the only collateral that Greek political parties offer to banks.

Practical implications

As a result of research, structural changes are necessary to immediately be made in order to cope with politically exposed persons and political parties' corruption and funding in Greece, especially during the current fiscal crises. Greek political parties need to raise funds from other sources than only public subsidies. Anti-Money Laundering Regulatory Framework have to stop conduit contributions and force banks to apply Know Your Client Principle for donors. Also, to include on Suspicious Activity Report a checkbox of “Political Finance Violations”. Establishing a code of conduct informing employees of the risks and subsequences of political corruption, creating a culture of honesty and high ethics and implementing Controlled Foreign Corporation legislation to cope with corruption in political parties' funding can help to recover ill-gotten assets. Finally, implementing Business Principles for Countering Bribery and UK Bribery Act will increase transparency in funding of Greek political parties.

Originality/value

The paper examines corruption and funding sources of Greek political parties, especially during the period 2009-2011, suggesting policy measures to deter and detect money laundering and illegal funding to politically exposed persons and political parties. Findings offer important measures for political analysts, government and society as a whole. A stable political system is prerequisite for a healthy society and for economic growth.

Details

Journal of Money Laundering Control, vol. 17 no. 1
Type: Research Article
ISSN: 1368-5201

Keywords

Article
Publication date: 3 January 2017

Ramandeep Kaur Chhina

The purpose of this paper is to critically examine the concept of “politically exposed persons (PEPs)” as provided under the Indian anti-money laundering (AML) regime…

338

Abstract

Purpose

The purpose of this paper is to critically examine the concept of “politically exposed persons (PEPs)” as provided under the Indian anti-money laundering (AML) regime, particularly focussing on the Reserve Bank of India guidelines to its supervised banks on dealing with the potential money laundering risks posed by PEPs.

Design/methodology/approach

The definition of PEPs as provided by international standard setters and the concept as defined by the Indian AML regime was examined to examine the extend of the compliance of the Indian AML regime with the mandatory requirements of revised 2012 Financial Action Task Force (FATF) recommendations and other international standards.

Findings

The paper clearly establishes that the current AML regime of India does not fully comply with the mandatory requirements of the revised 2012 FATF recommendations, and the RBI guidelines do not provide any clear indications to its supervised banks on the effective development and implementation of AML PEPs control. The paper argues that it is high time for India to increase its regulatory focus on the issue of PEPs and to expand its definition of PEPs by including both domestic PEPs and “close associates” of PEPs within the definition.

Originality/value

The paper demonstrates in an exceptional way that despite variations in the scope of the PEPs definition at an international level, all the standard setters have included certain key individuals (both domestic and foreign PEPs and “close associates” of PEPs) within the scope of the definition and how the legal and regulatory requirements in India are falling short of compliance even with these minimum key requirements. By adopting a step-by-step approach in critically examining the current legal and regulatory requirements enforced on banks in India to efficiently deal with the money laundering risks posed by PEPs, the paper makes a valuable contribution in highlighting the steps that might be taken to strengthen PEPs’ AML controls in India.

Details

Journal of Money Laundering Control, vol. 20 no. 1
Type: Research Article
ISSN: 1368-5201

Keywords

Article
Publication date: 1 January 2013

Lishan Ai

The purpose of this conference paper is to provide a contextual and better understanding of the nexus between corruption and money laundering, in order to enhance the role…

1690

Abstract

Purpose

The purpose of this conference paper is to provide a contextual and better understanding of the nexus between corruption and money laundering, in order to enhance the role of anti‐money laundering (AML) in combating corruption.

Design/methodology/approach

This paper analyses the key elements of the linkage between AML and anti‐corruption, and provides Australia and China as examples, demonstrating the potential importance of using AML to combat corruption.

Findings

It is found that apart from the main financial sectors, designated non‐financial sectors and high‐risk customers involved businesses are also vulnerable for money laundering, such as non‐financial designated business and professions, and politically exposed persons. In the meantime, these factors are regarded as the key points to combat corruption.

Originality/value

This paper highlights the corruption risks hidden in designated non‐financial business and professionals, and the risks of laundering the proceeds of corruption by politically exposed persons and financially exposed persons (FEPs).

Details

Journal of Money Laundering Control, vol. 16 no. 1
Type: Research Article
ISSN: 1368-5201

Keywords

Article
Publication date: 8 May 2009

George Gilligan

The purpose of this paper is to discuss the subject of politically exposed persons (PEPs) and some of the major issues associated with them. PEPs as a specific category…

682

Abstract

Purpose

The purpose of this paper is to discuss the subject of politically exposed persons (PEPs) and some of the major issues associated with them. PEPs as a specific category are receiving increased attention from governments, law enforcement agencies and international organisations such as the Financial Action Task Force. An increased academic and theoretical focus upon PEPs is required because there is considerable uncertainty about the specific definition of PEPs, how precisely they may be categorised, what the impacts of their activities are and how they might be countered.

Design/methodology/approach

This paper first discusses some of the ambiguities surrounding the definition of PEPs. The paper then emphasises the unsurprising reality that definitional confusion regarding PEPs contributes to uncertainty about their incidence and effects. The paper then highlights some of the key policy challenges in responding to PEPs and provides examples of good and bad practice in seeking to counter the activities of PEPs.

Findings

The paper concludes that it is important for governments and business organisations to be proactive about emerging risks relating to PEPs. However, experience suggests that it seems extremely difficult to segregate political contexts from how the harms and other problems associated with PEPs might be countered and that political expediency may be a defining overall factor in how responses to PEPs evolve.

Originality/value

The paper's originality and value lies in its efforts to link the definitional and political landscape surrounding the issue of PEPs, and to articulate that progress in the former is unlikely without open appraisal of the impacts of the latter.

Details

Journal of Financial Crime, vol. 16 no. 2
Type: Research Article
ISSN: 1359-0790

Keywords

Article
Publication date: 5 June 2020

Mario Menz

The purpose of this paper is two-fold. First, it highlights areas of disconnect between how the financial services sector in the UK approaches the management of politically

Abstract

Purpose

The purpose of this paper is two-fold. First, it highlights areas of disconnect between how the financial services sector in the UK approaches the management of politically exposed persons (PEPs) risk; the requirements of the UK’s laws and regulations in relation to PEPs; and the expectations of the Financial Conduct Authority (FCA) in this regard. It then proposes an alternative approach to the risk-management of PEPs.

Design/methodology/approach

Semi-structured interviews have been carried out among compliance professionals in UK financial services.

Findings

This paper provides rare insight into the anti-money laundering (AML) arrangements of UK banks, an area that has not yet been widely researched in the academic literature. It argues that the expectations of the FCA exceed both the letter and the spirit of the UK’s laws and regulation around AML by emphasising an administrative approach over a qualitative/analytical approach to risk-management. It further suggests that mixed messages disseminated by the FCA have incentivised banks to shift their focus from financial crime risk (i.e. preventing money laundering and terrorist financing, etc.) towards regulatory risk (i.e. the risk of falling foul of regulatory expectations).

Practical implications

The paper makes suggestions for a more relationship-centric approach to PEP risk-management.

Originality/value

It provides unique insight into PEP risk-management in financial services, and argues for the FCA to propagate a more relationship-centric approach to PEP risk-management.

Details

Journal of Financial Crime, vol. 28 no. 4
Type: Research Article
ISSN: 1359-0790

Keywords

Article
Publication date: 8 February 2021

Howard Chitimira

Money laundering activities were allegedly rampant and poorly regulated in the South African financial markets and financial institutions prior to 1998. In other words…

Abstract

Purpose

Money laundering activities were allegedly rampant and poorly regulated in the South African financial markets and financial institutions prior to 1998. In other words, prior to the enactment of the Prevention of Organised Crime Act 121 of 1998 as amended (POCA), there was no statute that expressly and adequately provided for the regulation of money laundering in South Africa. Consequently, the POCA was enacted to curb organised criminal activities such as money laundering in South Africa. Thereafter, the Financial Intelligence Centre Act 38 of 2001 as amended (FICA) was enacted in a bid to, inter alia, enhance financial regulation and the combating of money laundering in the South African financial institutions and financial markets.

Design/methodology/approach

The paper provides an overview analysis of the current legislation regulating money laundering in South Africa. In this regard, prohibited offences and measures that are used to curb money laundering under each relevant statute are discussed. The paper further discusses the regulation and use of customer due diligence measures to combat money laundering activities in South Africa. Accordingly, the regulation of customer due diligence under the FICA and the Banks Act 94 of 1990 as amended (Banks Act) is provided.

Findings

It is hoped that policymakers and other relevant persons will use the recommendations provided in the paper to enhance the curbing of money laundering in South Africa.

Research limitations/implications

The paper does not provide empirical research.

Practical implications

The paper is useful to all policymakers, lawyers, law students, regulatory bodies, especially, in South Africa.

Social implications

The paper seeks to curb money laundering in the economy and society at large, especially in the South African financial markets.

Originality/value

The paper is original research on the South African anti-money laundering regime.

Details

Journal of Money Laundering Control, vol. 24 no. 4
Type: Research Article
ISSN: 1368-5201

Keywords

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