The Financial Action Task Force (FATF) guidance on dealing with Politically Exposed Persons
Anand Rajpurohit
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The Financial Action Task Force (FATF) provides guidance on dealing with Politically Exposed Persons (PEPs), individuals who hold or have held prominent public positions. These guidelines are aimed at mitigating the risks associated with PEPs potentially using their positions for money laundering, corruption, or bribery.
Key points from the FATF guidance include:
1. Additional AML/CFT Measures: FATF Recommendations mandate additional measures for financial institutions when dealing with PEPs. These measures are preventive in nature and aim to ensure that institutions understand the potential risks associated with these individuals.
2. Customer Due Diligence (CDD) Requirements: Effective implementation of Recommendation 12 involves robust CDD processes. Financial institutions must know their customers, including whether they are PEPs, their family members, or close associates.
3. External Sources of Information: Institutions can use external sources, such as commercial databases, to identify PEPs. However, FATF does not mandate the use of specific databases, as these alone may not be sufficient to meet PEP requirements.
4. Red Flags and Indicators: The guidance includes a collection of red flags and indicators to detect potential misuse of financial systems by PEPs. Examples include:
- Use of corporate vehicles to obscure ownership.
- Inconsistent information provided by PEPs compared to publicly available data (e.g., asset declarations).
- Business relationships with PEPs linked to higher risk countries or sectors identified by FATF.
5. Preventative Nature: It's crucial to note that these measures are preventive and not indicative of criminal activity by PEPs. They are designed to enhance transparency and integrity within the financial system.
Overall, adherence to FATF guidance helps institutions effectively manage the risks associated with PEPs while ensuring compliance with international standards in Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) efforts.