Banking regs reemphasize rules for monitoring accounts of foreign officials

The agencies–the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC), the Financial Crimes Enforcement Network (FinCEN), the National Credit Union Administration (NCUA) and the Office of the Comptroller of the Currency (OCC)–said well-established due diligence and anti-money laundering (AML) rules are sufficient to monitor the risks of potential illegal activity by so-called “politically exposed persons,” or PEPs.

“Addressing the money laundering threat posed by public corruption of foreign officials continues to be a national security priority for the United States. In high-profile cases over the years, foreign individuals who may be considered PEPs have used banks as conduits for their illegal activities, including corruption, bribery, money laundering, and related crimes,” said the joint statement.

Although banking regulations do not specifically define a PEP, the regulators say the term is commonly used in the financial industry “to refer to foreign individuals who are or have been entrusted with a prominent public function, as well as their immediate family members and close associates.” The term does not apply to U.S. officials.

Not all PEPs are at high risk to commit crimes like “corruption, bribery, money laundering, and related crimes,” the regulators said, but the risk of such crimes being committed by PEPs should be evaluated “consistent with the customer due diligence (CDD) requirements contained in FinCEN’s 2016 CDD Final Rule.”

Banks may establish that a customer is a PEP when an account is opened and may monitor that account periodically based on that risk factor, the regulators said.

“Banks must adopt appropriate risk-based procedures for conducting CDD that, among other things, enable banks to: (1) understand the nature and purpose of customer relationships for the purpose of developing a customer risk profile, and (2) conduct ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information,” the statement said.

Some of the risk factors to be considered “are a customer’s public office position (or that of the customer’s family member or close associate), as well as any indication that the PEP may misuse his or her authority or influence for personal gain,” the statement said.

Other factors include the type of products and services used, volume and nature of transactions, the region of the world the PEP lives and works in, the PEP’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 significant government assets or funds, and the overall nature of the customer relationship.

These risk factors may increase or decrease, the regulators said, based on his or her position in the government. Should the customer retire or otherwise leave government service, the risks associated with PEPs may change as well.

All of these factors are to be considered as part of a bank’s mandated CDD assessment of a PEP’s risk profile, regulators said. However, banks are not required to implement additional, unique due diligence steps for PEPs.

“The customer information and customer risk profile may impact how the bank complies with other regulatory requirements, such as suspicious activity monitoring, since the bank structures its Bank Secrecy Act (BSA)/anti-money laundering (AML) compliance program to address its risk profile, based on the bank’s assessment of risks,” the statement said.