Perspectives on PEP's

Having classified an individual as a PEP is it always appropriate to keep him (or her) as such?

From a European and UK view the key passages are in:

1. The 3rd Money Laundering Directive : Article 2(4) of Commission Directive 2006/70/EC explicitly provides for persons that have ceased to be entrusted with a prominent public function for a period of at least one year.
2. The UK Money Laundering Regulations 2007 : Section 14(5) of the UK Regulations says that a PEP means a person who is an individual that is or has, at any time in the preceding year, been entrusted with a prominent public function.

Accordingly, it is possible to dePEP in the UK and Europe.  By contrast, in Jersey and Guernsey the rules are quite different.

Take Jersey for example.  Article 15(6) of the Money Laundering (Jersey) Order 2008 provides that a PEP is an individual who is or has been entrusted with a prominent public function.  When compared to the 3rd Money Laundering Directive and UK Money Laundering Regulations 2007 it can be seen that this doesn't allow for dePEPing and policy in deciding on this course of action was based on split views at the consultation stage.

In considering dePEPing and other PEP matters, the FSA does provide 'good practice' tips here.

The Wolfsberg Group guidance on the matter dated May 2008, reads as follows:

"When is it no longer necessary to regard an individual as a PEP?

There is no agreed method for determining the time period that an individual should be regarded as a PEP after they have left the public function that gave rise to the initial categorization. The risk associated with a PEP is closely related to the office or function they held and the influence associated with that post. Although that influence may well substantially reduce as soon as they have left office, a PEP may have been in a position to acquire his or her wealth illicitly, so that a high level of scrutiny with regard to such individuals may be warranted even after they have left office. In the case of a former PEP, continued treatment as a PEP may not be warranted if there has been no sufficiently adverse or derogatory information widely published for a period of time that is long enough to conclude that:

• Taking into account the susceptibility of the former position to corruption, their source of wealth is legitimate and
• The individual has not abused such remaining influence as he or she may have.

Any de-categorization should be subject to an appropriate level of senior management review and approval.  This review should be documented."

It could be argued that the Jersey position does not follow a risk based approach in adopting a blanket policy.  Indeed it is clear that a character who has held high office, such as a President or Prime Minister, would be very unlikely to lose his PEP status whereas children of lower ranking PEPs may never even have had any influence, let alone retain it for a lifetime.  The use of a PEP risk grading system may well provide a limited solution from a Jersey perspective.

Join the debates on PEPs in the KYC360 Forums: http://portal.kyc360.com/topic/list?forum_id=12 and http://portal.kyc360.com/topic/list?forum_id=2

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