Critical Risk Assessment Criteria for PPEs (or PEPs)
International Anti-Money Laundering and Combating the Financing of TerrorismAML) regulations and laws require companies to examine and assess the risks of Money Laundering (ML), Financing of Terrorism (FT) or Proliferation Financing (FP) associated with current and potential customers classified as Politically Exposed Persons (PEPs). The risk assessment for PPEs is part of the Customer Due Diligence (CDD) measures.
To ensure compliance and effectively manage ML/FT/PF, bribery and corruption risks, companies should establish clear criteria for assessing customers identified as PPEs.
However, not all PPEs represent the same degree and extent of ML/FT/PF, corruption and bribery risk. Therefore, companies cannot adopt a one-size-fits-all approach and need to implement a risk-based approach, analyzing each PPE client on a case-by-case basis.
Companies should implement risk assessment criteria to analyze the ML/FT/PF risks associated with each PPE. This approach allows companies to tailor their risk management strategies effectively, addressing the different levels of risk presented by different PPEs and maintaining effective controls against financial crime, including ML/FT/PF.
The following are some criteria that companies should consider when assessing ML/FT/PF risks related to PPEs:
- Position and Function Analysis
It is critical to assess whether the identified customer occupies a position of high influence in the government or political system. High-level positions, such as Prime Minister or Minister of Foreign Affairs or Defense, represent higher risks due to their ability to influence public policy, government programs and business transactions. Positions such as members of parliament or advisory boards have more moderate levels of risk. The position and role of the EPP should be evaluated in terms of its influence over public decisions and access to strategic resources. - Public Profile
The analysis of a PEP's public profile is crucial in risk assessment. Companies should examine the reputation and image of the SPP in the public domain. While high visibility may intensify scrutiny, it does not necessarily imply higher ML/FT/PF risk. The assessment should consider both public opinion and media coverage to distinguish between visibility and actual risks. - Jurisdictional Risk
Jurisdictional risk considers the political and economic stability, as well as the effectiveness of theAML framework of the country to which the PEP belongs. Foreign PEPs linked to countries with high levels of corruption or weak governance represent higher ML/FT/PF risks. - Relatives and Associates
It is essential to investigate the relationships of the PPE, including relatives and close associates, as they can significantly influence the risk profile. PPEs often operate through third parties to avoid exposure of their identity. - Source of Funds and Wealth
Companies should investigate whether the funds and wealth accumulated by the PPE are consistent with its official income or legitimate business. Discrepancies may indicate possible financial crimes. - Transaction Patterns
Companies should monitor the nature and frequency of transactions conducted by PPEs, identifying suspicious patterns such as exceptionally high volumes or links to high-risk jurisdictions. - Length of Public Office
The length of time an EPP holds public office can significantly increase its risk profile due to the development of extensive networks and consolidated influence.
Conclusion:
PPE risk assessment is essential to mitigate ML, TF, FP, bribery and corruption risks. The AMLTool is a reliable tool that enables detailed analyses aligned with international standards, helping companies to effectively identify and manage the risks associated with PPEs.
