The Wolfsberg Group (Wolfsberg) updated its guidance as to how Financial Institutions (FIs) should hand the money laundering risks posed by Politically Exposed Persons (PEPs). Wolfsberg reiterated the importance of addressing the financial crime risks and points to massive corruption investigations suggesting that defences need to remain strong to combat the money laundering risk when dealing with PEPs.
Risk-Based Approach (RBA)
Wolfsberg considers the most effective way to manage PEP risk is to position the PEP control framework as part of the risk-based approach to the customer due diligence framework and risk assessment process. The Financial Action Task Force‘s (FATF’s) definition on RBA is as follows:
A RBA to AML/CFT means that countries, competent authorities and financial institutions, are expected to identify, assess and understand the ML/TF risks to which they are exposed and take AML/CFT measures commensurate to those risks in order to mitigate them effectively.
Multi-stakeholder Approach (MSA)
To combat corruption effectively, Wolfsberg calls for an MSA with the relevant stakeholders:
- Governments to issue PEP lists relevant to their jurisdictions, clearly articulating any expectations on the holdings of their PEP population, as well as requirements relating to disclosures of foreign accounts and assets. More broadly governments should also ensure that anti-corruption measures are strengthened.
- Reputable Media and Non-Governmental Organisations (NGOs) to highlight the most corrupt countries, regimes and those where credible evidence of corruption exists, making that information publicly available.
- Law enforcement to increase prosecutions, civil forfeiture actions or similar, including implementing tools to seize assets, for example, unexplained wealth order type tools to increase the level of assets seized. In enhancing these tools, they could share typologies and insights on the evolving nature of the risks and how the laundering of corrupt funds is being undertaken
- Regulators to adopt a more risk-based approach to the way they assess FIs’ PEP regimes, ensuring that this is not a tick the box exercise but an appropriate evaluation of whether FIs are assessing, and managing risks of senior, important and prominent PEPs.
- Policymakers to bring greater clarity to the objectives for PEP regimes and identify where resources are most needed to achieve those objectives. This includes solid frameworks for cooperation and information sharing between law enforcement and the private sector, where information sharing amongst FIs, with appropriate safeguards, should also be considered.
Wolfsberg understands that although a former PEP will lose substantial influence as they leave their office, a PEP may have been in the position to acquire his or her wealth illegally and therefore, it is imperative that a high level of scrutiny remains of such persons.
However, Wolfsberg does not believe in the concept known commonly as “once a PEP, always a PEP”. This concept is not consistent with the RBA as the concept does not address the risk in totality after a PEP leave his or her office. Wolfsberg suggests these following considerations that should be made when declassifying a former PEP:
- The level of inherent corruption risk in their country of political exposure
- The position held and its susceptibility to corruption or misappropriation of state funds or assets
- Length of time in office and likelihood of return to office in future
- The level of transparency about the source of wealth and origin of funds, in particular, those funds generated as a consequence of office held
- Links to any industries that are high risk for corruption
- The overall plausibility of the stated customer profile and their net worth
- The level of transparency and plausibility of transactions processed through the account
- Whether there is relevant adverse information about the customer widely published in reputable sources
- How politically connected they remain once they have left office