Version:1.0 all the facts associated with a

Version:1.

0StartHTML:0000000237EndHTML:0000012500StartFragment:0000002872EndFragment:0000012464SourceURL:file://localhost/Users/koko/Desktop/CLT%20-%20AML/CLT%20-%20Assignment%20-%20CON-000234051%20-%20Draft%20-%2017Jan18.docSpecific Issues  PEPs  The report states thefirm has “no clear approach to identifying and dealing with politically exposedpersons (PEPs)”.  This puts the firm at risk ofemployees being unable to recognise prospective or existing customers as PEPs,not having all the facts associated with a customer and therefore being unableto properly assess and manage associated risks.

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The firm is also at risk ofnon-compliance with AML Acts and Regulations. In order to identifyPEPs, employees must be taught that a PEP is an individual who is or has, at anytime in the previous year, been entrusted with an important public function inBermuda (Domestic PEP), by a country or region outside of Bermuda (ForeignPEP), or by an international organisation (International Organisation PEP).Employees must be taught that Domestic and Foreign PEPs include heads of stateand government, ministers, members of parliament, senior government andpolitical party officials, supreme court judges, board members of centralbanks, senior officers in the armed forces, and senior executives ofstate-owned enterprises, and that International Organisation PEPs includesenior management, directors and deputy directors of an internationalorganization.  PEPs present a higher risk to RFIsbecause a PEP’s position could make them susceptible to corruption, moneylaundering and other financial crimes.

Connection with ahigh-risk industry or jurisdiction could also increase the risk of doingbusiness with a PEP. These risks extend to a PEP’s family members and close associatesincluding their spouse, common law spouse, child, the child’s spouse or commonlaw spouse, parents, siblings, girlfriend, boyfriend, important members of thesame political party or organization, and individuals with close businessrelationships with the PEP.  Failure to have policiesand procedures to identify and deal with PEPs points to an overall weakness inthe firm’s know your customer (KYC) and customer due diligence (CDD)procedures. Local and international standards dictate that a risk-basedapproach be applied to CDD. Measures taken and information collected shoulddepend on customer type, the business relationship, the expected nature oftransactions, and the extent such factors expose the firm to risks of moneylaundering and other financial crimes. The AML Acts and Regulations requireenhanced due diligence (EDD) measures be applied to all Foreign PEPs and toDomestic and International PEPs considered high-risk.

 The firm must determineits risk appetite in relation to PEPs. That is, is it willing to establishbusiness relationships with PEPs or continue business relationships withexisting customers who are PEPs or who have become PEPs since establishment ofthe business relationship? Given the firm’s current lack of directive, it is myopinion that all PEPs be considered high-risk and therefore subject to EDDmeasures, and prospective and existing business relationships with PEPs shouldrequire senior management approval. Determining PEP statusshould be part of customer on boarding procedures. Existing CDD proceduresshould be amended to include a PEP self-identifying question in the ‘ComplianceForm for Individuals’. EDD in the form of additional checks and verificationsto identify PEPs and mitigate risks are needed and can be achieved through acombination of internet, media and social media searches, and subscriptions tocommercial databases like WorldCompliance or World-Check. EDDprocedures for PEPs should also apply to their family members and closeassociates.  EDD procedures must be applied toexisting customers now and on an ongoing basis to ensure that none are PEPs orhave become PEPs since the establishment of thebusiness relationship.

 

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