International Anti-Money Laundering and Combating the Financing of TerrorismAML) regulations and laws require companies to examine and assess the money laundering (ML), terrorist financing (TF) or proliferation financing (PF) risks associated with current and potential customers classified as Politically Exposed Persons (PEPs or PPEs). 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 must implement a risk-based strategy, 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 the criteria that companies should consider when assessing risks related to PPEs:
Position and Function Analysis
It is essential to assess whether the identified customer occupies a position of high influence in the government or political system. High-ranking positions, such as Prime Minister, Minister of Foreign Affairs or Minister of Defense, present higher risks due to their ability to influence public policies, government programs and commercial transactions, in addition to significant access to resources.
In contrast, positions such as members of parliament or advisory councils have more moderate levels of risk. The position and role of the MPE should be evaluated based on its influence on public decisions and its access to financial or strategic resources.
2. Public Profile
The analysis of the public profile of a PPE is crucial in the risk assessment process. Companies should examine the reputation and image of the PPE in the public sphere, considering that those with high media exposure and under public scrutiny may present higher risks.
However, high visibility does not necessarily imply a higher risk of money laundering (ML), terrorist financing (TF) or proliferation financing (PF).
3. Jurisdictional Risk
Jurisdictional risk analysis assesses the political and economic stability, as well as the effectiveness of the AML framework in the country to which the SPP belongs. Foreign PPEs tend to present higher risk compared to local PPEs, especially when they are linked to countries with high levels of corruption, weak governance or unstable political environments.
4. Family and Associates
The analysis of family members and associates is an essential component of the PPE risk assessment. It is critical to investigate the relationships and connections of PPEs, including family members, close associates and friends. These connections can significantly influence the risk profile.
5. Origin of Funds and Wealth
Assessing the source of funds and wealth accumulated by a PEP is critical to determine the legitimacy of its transactions. Discrepancies between declared resources and known income may indicate possible involvement in financial crimes.
6. Transaction Patterns
Analysis of PPEs' transaction patterns is crucial to identify any unusual or suspicious behavior.
7. Duration of Public Office
PPEs who remain for long periods in influential positions may have developed extensive networks, which increases their risk profile. Even after leaving office, ex-PPEs may continue to pose risks due to established networks.
Conclusions
Risk assessment associated with PPEs is essential to mitigate the risks of money laundering (ML), terrorist financing (TF), proliferation financing (PF), bribery and corruption.
In this context, the AMLTool stands out as a reliable solution for performing detailed analyses aligned with international compliance standards.
