Certain types of customers are considered to have inherent high risk. An example of a customer with inherent high risk is a Politically Exposed Person, more commonly known as a “PEP”.
A basic description of a PEP is a person who has held (in the preceding 12 months) a prominent public position outside of NZ such as a head of state or country, a senior politician, an ambassador or senior foreign representative and a high ranking member of the armed forces. The Act’s definition includes any family member of the PEP.
PEPs are regarded as high risk customers as many developing countries lose significant amounts of revenues or aid funds through public sector corruption. A large proportion of these embezzled funds are placed with financial institutions, usually in other jurisdictions.
If a business identifies a customer as a PEP the Act requires that the business obtains information on the source of wealth or funds of the PEP. The Act also requires senior management to approve the continuing business relationship.
To assist PEP obligations, a business may wish to consider maintaining a PEP register and assigning risk ratings against each PEP. PEPs that may be regarded as higher risk are those from developing nations, countries with higher rates of corruption or PEPs who have been the subject of adverse media. Any business that rates a PEP as high risk can then reflect such ratings in their ongoing monitoring programme.
Despite the Act’s definition of a PEP being restricted to someone who has held a prominent public function within the preceding 12 months, a business may consider it appropriate to apply enhanced due diligence and enhanced monitoring for anyone who has been a PEP within a 2-5 year period.
PEP lists should have ongoing filtering against customer databases. Transaction filtering for PEPs should include originator and beneficiary detail on incoming and outgoing payments. Transaction filtering relevant to detecting PEPs may include Government BIC codes (business and banking identification codes).
