On August 21, 2020, the Federal Reserve Board, the Financial Crimes Enforcement Network, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency issued a joint statement to elucidate due diligence requirements to be followed by “banks” (as defined by the Bank Secrecy Act) that are supervised by one or more of the five government agencies. Specifically, the statement clarifies the manner in which banks are expected to apply the risk-based approach to due diligence performed in connection with customers who may be deemed politically exposed persons, or PEPs.
The definition of PEP, as explained in the joint statement, does not generally include public officials who are US persons; the term refers to foreign individuals who serve or have served in a prominent public position, and the families and close associates of such persons. The term is broader than “senior foreign political figure” as defined under the private banking regulations of the BSA.
According to the joint statement, PEP relationships present different levels of money laundering risk, and banks must adapt their due diligence procedures to the risk.
Although there is no expectation or regulatory requirement that banks establish unique, additional due diligence steps for PEPS, banks are required to establish written procedures for conducting customer due diligence, and must apply risk-based procedures that allow them to develop a customer risk profile and continue to monitor in order to identify and report suspicious transactions, and update customer information based on risk. The level of risk associated with a PEP depends on transaction volume, known legitimate sources of funds, and the value of the account. The risks of a particular location should be taken into account as well, along with the local ethics and enforcement environment. Whether, when, and what additional information is collected will depend on the customer’s position or office, indications of abuse of the office, the customer’s access to government funds, and his or her ability to influence government activities or decisions.