PEPs and enhanced due diligence

The UK Money Laundering Regulations 2007 define a politically exposed person

(PEP) as a person 'who is or has, at any time in the preceding year been entrusted
with a prominent public function by a state other than the United Kingdom, a
(European) community institution or an international body' or a family member or
known close associate of such a person.

By law clients who are PEPs need to be subjected to enhanced due diligence.

Details of what are considered to be prominent public functions are shown in

Schedule 2, paragraph 4(1)(a) of the money laundering regulations. For risk
management and reputational risk reasons, businesses may also wish to treat other
individuals who held such positions more than a year ago as PEPs.

In establishing whether someone is considered to be a family member or known

close associate, regard need only be had to information in the public domain or in the
possession of your business.

'International body' is not defined, and due consideration should be given to the type,
reputation and constitution of the body before excluding it or its representatives from
enhanced due diligence.

Businesses are required to have risk-sensitive measures in place to recognise PEPs.

This can be a simple check conducted by asking the client, or research on the web.
Businesses likely to undertake services for PEPs regularly could subscribe to a
specialist database. Businesses should ensure that they are aware of any published
news during a business relationship that could change a client's status to that of a
PEP.

Enhanced due diligence

A risk-based approach to customer due diligence (CDD) will identify situations which
can present a higher risk of money laundering or terrorist financing. Regulation 14
sets out a general provision that enhanced due diligence must be applied in such
situations and means that the business must obtain additional CDD information about
the client.

The 2007 regulations also specify that enhanced due diligence must be applied in a
number of situations. Two relevant to providers of defined services are outlined
below:

If a client has not been physically present for identification purposes, one or
more additional measures must be taken to enhance due diligence, for
example by, inter alia, either gathering additional documents, data or
information, or taking additional steps to verify documents or obtain a
confirmatory certificate from a credit or financial institution subject to the
money laundering directive; and
if a business relationship or occasional transaction is to be undertaken with a
PEP in which case the business must provide for senior management
approval for the relationship to be established, must take adequate measures
to establish the source of wealth and funds which are involved and must
conduct enhanced monitoring of any relationship entered into.
The following illustrate the different strength of various forms of documentary
evidence used in establishing identity for CDD, starting with the highest:

documents issued by a government department or agency or a court

(including documents filed at Companies House or overseas equivalent)
documents issued by other public sector bodies or local authorities
documents issued by businesses regulated by the Financial Services
Authority or overseas equivalent
documents issued by professionals regulated for anti-money laundering
purposes by the bodies listed in Schedule 3 (Part 1) of the 2007 regulations
or overseas equivalents
documents issued by other bodies.

Please see the CCAB guidance for further information.