There has recently been a lot of news coverage regarding allegations of corruption against various foreign senior government officials.
There have also been suggestions in the press that the UK is a popular destination for these allegedly corruptly obtained funds, to be used for investment in property, school fees for children or other trappings of a lavish lifestyle.
To counter the risk posed to the UK's regulated sector from the laundering of these funds, you are now required to conduct enhanced due diligence on politically exposed persons (PEPs).
Who is a PEP?
A PEP is a person who has been entrusted within the last year by:
- a state other than the UK
- a community institution, or
- an international body
and who fulfils one of the following public roles:
- heads of state, heads of government, ministers and deputy or assistant ministers
- Members of Parliament
- members of supreme courts, or constitutional courts or of other high-level judicial bodies whose decisions are not generally subject to further appeal, except in exceptional circumstances
- members of courts of auditors or of the boards of central banks
- ambassadors, chargés d’affairs and high ranking officers in the armed forces
- members of the administrative, management or supervisory bodies of state-owned enterprises.
PEPs will also include this person's family members and known close associates.
What do you need to do about PEPs?
If your client is a PEP you must:
- have senior management approval for establishing a business relationship with a PEP
- take adequate measures to establish the source of wealth and source of funds which are involved in the business relationship or occasional transaction
- conduct enhanced ongoing monitoring of the business relationship.
Read more in our AML practice note on how to identify PEPs in a risk-based and proportionate way and how to meet the enhanced due diligence requirements.
Other points on PEPs
Merely undertaking a retainer for a non-UK based public authority does not mean that you are in a business relationship with a PEP.
However you should consider the corruption and money laundering risks posed by the public authority's home jurisdiction when conducting due diligence and ongoing monitoring of any retainer.
It is useful to consider the type of budgets usually associated with government agencies or officials from the particular jurisdiction, as well as the size of the retainer you are being asked to undertake.
If the money is coming from a government account, you should consider whether it is being used for purposes considered to be legitimate government spending.
For example it may be unlikely that a state governor from an African country who earns £12,000 per year and has no other business interests is able to purchase a mansion in Chelsea, or that a Defence Department should really be picking up the tab for Saville Row suits or a university education.