Time for a PEP talk

I have been working in Guernsey this week, and talking (amongst other things) about the proposed changes coming down the line towards us in the Fourth Money Laundering Directive .  (And before anyone says anything, no, Guernsey is not a member of the EU, so no, it is not bound by EU Directives, but yes, it does tend to abide by them.)  As you all know, one of the almost entirely uncontentious proposed changes is the extension of the definition of PEPs to include domestic ones as well as foreigners.  But one issue on which both the FATF – the source of this proposed change – and the draft MLD4 remain silent is the length of time for which one remains a PEP.  This is significant this week (patience: I will get to the point) because in the UK, my home jurisdiction, you are de-pepped (what? it’s a word) after being out of power for a year, while in Guernsey (and some other places) you remain a PEP forever.  That’s right: forever.  And because the PEP definition includes grandchildren, strictly speaking they should be considered PEPs forever too.

Here we find ourselves on the horn of an AML dilemma.  You all know how I feel about it: money laundering is a misnomer, because it does not work.  Filthy money is never cleaned – it just (the criminals hope) has enough done to it to make it look clean.  (It’s a bit like using Febreze instead of curtains.  Other fabric freshener sprays are available.)  So, in theory, money stolen or accepted in bribes by a corrupt PEP remains dirty forever – even when bequeathed to his heirs – so perhaps it makes sense to consider PEPs and the next two generations to be high risk (and subject to enhanced due diligence) forever.  On the other hand, what with improving medical care and subsequent increased longevity, the pool of PEPs in the forever jurisdictions just keeps growing – and the danger here is that the concept of the PEP will become downgraded if people think that it is an impractical nonsense and just a paper-gathering exercise to placate the regulator.

As I say, both the FATF and MLD4 define PEPs, but neither sets a time limit. So what do you think?  One year?  Forever?  Ten years?  Or something else, rather than a time limit – for instance, until it can be shown that they have no further political influence (although they might have pinched the money when they did…)?

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10 Responses to Time for a PEP talk

  1. James Barclay says:

    Very good point Susan.

    I know the view of the GFSC (when I used to work there many moons ago) is that it is more than likely that once a PEP has left office (or several years latter) that any monetary discretions are going to come to light. Particularly in light of the recent Tesco creative accounting scandal, the newly incumbent PEP or in this case CEO looks at the previous post holders financial affairs in a new light.

    PEP Longativity (if this is the correct word) is a fair point as I’m sure some might argue Mrs T still had some form of political influence up until the end and there is always a case in point concerning Mr & Mrs Blair’s business interests on the back of past PEP exposure.

    Best regards

    James

    *From:* I hate money laundering [mailto:comment-reply@wordpress.com] *Sent:* 25 September 2014 10:59 *To:* jamesbarclay@galvan.co.uk *Subject:* [New post] Time for a PEP talk

    ihatemoneylaundering posted: “I have been working in Guernsey this week, and talking (amongst other things) about the proposed changes coming down the line towards us in the Fourth Money Laundering Directive . (And before anyone says anything, no, Guernsey is not a member of the EU, “

  2. come on! the NSA knows who everyone is - you dont need to says:

    So how do you view the Noble families of Britain and the landed gentry, many of whom only have wealth through theft, murder, fraud, extortion, slavery, or other gentlemenly pursuits? Would you bank them?

    My view is 1 generation removes much taint, 2 generations almost all, 3 generations forgedaboutit. If it is good enough for the Queen and the Prime Minister, it is good enough for me.

  3. Dear James
    That is an excellent point – and it supports the concept of monitoring (which admits that most competent criminals can get past initial CDD checks, but often give themselves away during later monitoring, as it is hard to maintain a facade for years). So once a PEP is out of the public eye, perhaps his true nature will start to show…
    Best wishes from Susan

  4. As for the point about the noble families of Britain, it is certainly the case that many of our stately homes were built on the proceeds of slavery. This raises another interesting point: is it right to judge their activities by our modern standards? So perhaps we do need to impose a generational limit on PEPs, as ones making their money centuries ago were living in very different times with unimaginably different standards.
    But I have to disagree with the comment about the Queen and the PM – both have made questionable choices at times!
    Best wishes from Susan

  5. smithyboyo says:

    Once a PEP, always a PEP! Although for monitoring purposes they may become non-material depending on individual circumstances and therefore only reviewed every few years.

  6. Hello Smithyboyo
    The “once a PEP, always a PEP” situation is certainly current in Guernsey. But can you say a little more about a “non-material PEP” – it’s not something I have come across before. I wasn’t aware that the legislation permitted “shading” of (foreign) PEPs in this way, but of course that may well be my lack of experience!
    Best wishes from Susan

    • smithyboyo says:

      Hi Susan, it’s all about risk, so even though all PEPs can be classified as high risk, some will be higher risk than others! Therefore the highest risk PEPs, will require more frequent enhanced monitoring because they may become unacceptable risk, whereas the lowest risk PEPs can have less frequent enhanced monitoring.

  7. Trevor Casbolt says:

    10 years seems like a reasonable length of time for any problems with source of funds/wealth to emerge (following the cessation of the role resulting in PEP status being conferred)

    • Dear Trevor
      Thank you for your comment, and yes, I agree. In general I am not in favour of time limits (or indeed value limits) as I think criminals can just work around them, but in this case, I do feel that we need to do something more realistic than “forever”!
      Best wishes from Susan

  8. Pingback: Now and forever | I hate money laundering

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