The Statement is, in part, in response to questions raised regarding the application of FinCEN’s customer due diligence (CDD) requirements and the application of a risk-based approach to PEPs. Although the Statement was issued by FinCEN together with federal banking agencies, and not the Securities and Exchange Commission or Commodity Futures Trading Commission, all financial institutions with AML program requirements under the BSA should similarly consider the guidance provided in the Statement to inform their BSA/AML programs, especially in light of their own CDD obligations.
Specifically, the Statement
- clarifies what constitutes a PEP
- identifies various risk-based factors that should be considered when determining whether to collect additional information from PEPs
- sets forth expectations on due diligence requirements for PEPs
Clarification Regarding PEPs
Key clarifications regarding PEPs stand out in the Statement:
- PEPs do not include United States public officials. Although BSA/AML regulations do not define the term “PEP,” the term commonly refers to foreign individuals who serve in a prominent public role, foreign individuals who are or have been entrusted with a prominent public function, as well as their immediate family members and close associates. Because of their roles and/or their relationships with people of public influence, these individuals may present a higher level of risk of potential public corruption and bribery and in turn may pose a higher risk of potentially engaging in transactions involving illicit proceeds.
- PEPs should not be confused with “Senior Foreign Political Figures.” Senior Foreign Political Figures are a subset of PEPs, and in comparison to PEPs, are typically individuals with substantial authority over the use of government-owned resources, policy, or government operations.
- PEPs are not all per se high risk by virtue of their status. Indeed, the Statement provides that the risks depend on a variety of factors, including, but not limited to, the PEPs’ political affiliations and associations, the volume and dollar amount of the transactions the PEP is engaged in, and the source(s) of the funds involved in the transactions and the nature of the products and services provided to the PEP.
BSA Customer Due Diligence Expectations for PEPs
The guidance reminds banks of their continuing obligations to apply a risk-based approach to CDD when developing risk profiles of all customers. Banks must continue to establish and maintain written procedures that
(a) allow banks to better understand the nature and purpose of customer relationships when developing a customer risk profile
(b) enable ongoing monitoring of suspicious transactions and the maintenance and updating of customer information
Importantly, the Statement clarifies some longstanding questions banks and financial institutions have long had regarding PEPs:
- There is no regulatory requirement in the CDD rule nor a supervisory expectation for banks to implement additional due diligence requirements for PEPs. Notwithstanding, the Statement states that PEPs remain subject to BSA/AML regulatory requirements. These requirements include suspicious activity reporting, customer identification, CDD, and beneficial ownership identification and reporting.
- The CDD rule also does not require banks to screen for or to determine whether a customer — or a beneficial owner of the customer — is a PEP.
- Banks may continue to exercise discretion in determining whether a customer is a PEP at the time the account is opened if they determine the information is needed to properly develop the customer risk profile.
- Banks may also consider conducting periodic reviews as part of their ongoing risk-based monitoring to ensure that updated customer information is properly maintained.
Because banks structure BSA/AML compliance programs to specifically address their own risk profile, the level of due diligence may vary. However, when developing customer risk profiles and determining the customer information that should be collected, the Statement provides that banks should consider the following factors:
- the customer’s public office or position of public trust, including the customer’s family relationships or close associations with individuals in public office or positions of public trust
- the customer’s official government responsibilities
- the level and nature of the customer’s authority or influence over government activities or officials
- the customer’s access to governmental assets or funds
- the type of products and services used by the customer
- the volume and nature of transactions conducted by the customer
geographical connections associated with the customer’s activity and domicile
any other information that may indicate that the customer may misuse his/her authority or influence for personal gain
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