The Realistic Challenges of PEP Determination – Is It Time for a Change?
At the moment, people in perceived positions of power and hence potentially vulnerable to corruption must be flagged as a PEP including their spouses, close associates and family members. Okay, I get that. Because you can have a public figure who abuses their power and co-opts friends and family members to help them stash the funds siphoned from the public purse.
Here’s the problem. Since the release of international guidance on PEPs and its application, we have come to realize that its application and ongoing maintenance is starting to cause a challenge in certain cases. The PEP list just keeps getting bigger and longer. People get added as PEPs, but no one is ever deleted. Ever. Kind of reminiscent of Hotel California – “You can check out any time you like but you can never leave.” In other words, a PEP may leave public office but they must remain on the PEP list and be treated as a high risk customer – for life!
Have you heard “Once a PEP; always a PEP”? Yes, me too. But the big question is: how does a PEP ever get off this list?
Now that we have several years under our compliance belts of trying to deter and detect corruption to make our world a more transparent and legitimate economy, we are feeling some pain. Many of us have come across individual cases where we feel they should be able to come off the PEP list. It may be that someone has retired from the PEP position many moons ago, is aging and in poor health or is no longer connected or moving in those types of political circles.
Let’s step back. Why do we have to determine who is a PEP? Some say it is thanks to Sani Abacha. Remember him? Yeah, that’s right. The former military dictator of Nigeria who in 5 years – yes, just 5 short years from 1993 to 1998 – managed to stash away a reputed £5 billion from the public purse into foreign bank accounts. Wait! Do the math on what that equals daily. Pretty crazy stuff. Given what his military salary surely should have been, it was easy to realize that he had his fingers in the cookie jar. He is known as the 4th most corrupt leader in recent history. So now we screen for PEPs. Thanks Sani!
Sani Abacha managed to stash away a reputed £5 billion from the public purse into foreign bank accounts.
Now that we have seen how corrupt some can be, why am I arguing for taking people off the PEP list? Because here is a simple, albeit a cheeky reality that some may be able to relate to. Let’s say you were married many years ago to a PEP and as such you were also tagged as a PEP because you were their spouse. Over time you have felt the joy, I mean challenges of the increased scrutiny and enhanced due diligence in your ongoing financial dealings. But the kicker is that you have been divorced from that PEP for several years. As a matter of fact, things are so acrimonious that you have not had any desire to have contact with or even lay eyes on the ex (for good reason) for a long time. Yet… you are still flagged as a PEP.
- Is that fair?
- Is that realistic?
- Is it truly necessary?
Given the current nature of your relationship, you surely are not going to help them stash bribery money. Nor would you be high on their list of people to turn to for assistance in stuffing the family coffers.
So yes, it feels to me like it is high time to see an amendment to all international and domestic regulatory guidance. Allow us to be able to apply common sense and treat certain special cases differently by removing their PEP status if you have a documented, valid reason to do so.
In the UK there was a bit of movement in 2017 whereby clarity was released regarding the treatment of PEPs, how long they should be flagged as PEPs once they leave office, and that families are to be removed immediately after they leave office (see FCA guidance FG17/6). Will other countries follow suit and will we see these allowances broaden even further?
Article Written by Glenna Smith
Managing Director of Smith Compliance Consulting (SCC) Inc.
Glenna Smith is Managing Director of Smith Compliance Consulting (SCC) Inc., a Certified Anti-Money Laundering Specialist (CAMS), holds an Advanced Certificate in Managing Virtual Currency and Financial Crime Risks, and the President of the Barbados Association of Compliance Professionals.
Glenna worked as a Compliance Officer facing regulators and managing inspections. She has gained wide and in-depth knowledge in compliance, operational risk, corporate governance and legislative matters over 30 years in the financial services sector.