PEPs – let's get serious

摘要

Purpose – The purpose of this paper is twofold. First, to draw attention to some options for better management of politically exposed persons (PEPs). Second, to draw attention to the problems experienced by low-capacity entities in implementing a risk-based approach to anti-money laundering (AML) counter financing of terrorism (CTF). Design/methodology/approach – The paper draws on the experience of the author in working with low-capacity reporting entities in Australia and the Pacific to assist them in the implementation of AML/CTF risk-based programs. Findings – There are four initiatives worthy of consideration by Financial Action Task Force (FATF) in their current revision work that would improve management of PEPs and other AML/CTF risks: extension of the FATF requirement 33 to bring government agencies that incorporate companies within recommendations 5-16, in effect expanding the concept of “customer”; extension of the FATF requirement 34 to bring government agencies that register trusts within recommendations 5-16, also in effect expanding the concept of “customer”; extension of Special Recommendation VIII to require reporting of all inbound and outbound electronic financial transactions above set thresholds; and introducing a two-tier AML/CTF regime to assist low-capacity entities. Research limitations/implications – This paper is based on observations derived from working alongside low-capacity entities in Australia and the Pacific. Practical implications – This includes expansion of the FATF recommendations to new sectors and adoption of a two-tier AML/CTF system instead of the single risk-based system. Originality/value – FATF and policymakers should consider the significant value that can be obtained by extension of the FATF recommendations as suggested in closing systemic weaknesses, reducing the overall cost of AML/CTF regimes and improving their efficacy. The paper draws on the current experience of new regulated entities not previously exposed to AML/CTF requirements. Regulators implementing risk-based regimes should consider the issues experienced by low-capacity entities when measuring the likely success of risk-based regimes. See similar recommendations made regarding companies and trusts by Transparency International in their March 2009 paper “Undue diligence.”