On 1 April 2015, updated AML legislation came into force in the Isle of Man. (No, I don’t know why anyone would choose that particular day to bring anything into force.) The 2015 version of the Code (as they have it in the IOM – we go for Regulations in the UK, while they like a juicy Order in Jersey) tidies up some earlier legislation, and also anticipates the Fourth Money Laundering Directive in various ways. One of these is in its definition of what we are now calling domestic PEPs.
When the FATF started making noises about widening the definition of PEPs to include your own domestic ones as well as foreigners, several small jurisdictions pointed out that for them, if a “domestic PEP” is anyone in a position of public influence, and their family, and their close associates, you would end up with three seasonal workers and a stray dog who weren’t PEPs. Rumblings started about the idea of risk assessing domestic PEPs – or, as I prefer to think of it, shading them. So how to express this in clear legislative terms?
Well, here’s what they’ve done in the IOM’s new Code. For a start, a domestic PEP is “a natural person who is or has been entrusted with prominent public functions in the Isle of Man and any family members or close associates of that person, regardless of the location of those family members or close associates”. So only the PEP’s position has to be Manx – his family and friends can be scattered across the globe. And then when it comes to how to treat a domestic PEP (which sounds like the start of a joke, but isn’t), it is more implied than stated. In the section that talks about PEPs and their need for enhanced due diligence, the Code says: “A relevant person must maintain appropriate procedures and controls for requiring the approval of its senior management [and] take reasonable measures to establish the source of wealth [and] perform ongoing and effective enhanced monitoring of any business relationship with a domestic PEP who has been identified as posing a higher risk of ML/FT, or any foreign PEP” (my italics). So the expectation is that all PEPs will be identified as such, and then domestic ones will be risk assessed in order to identify the ones that are higher risk and therefore should be subject to EDD. It’s neat enough, but I would have preferred more clarity.
As I see it, the process is this:
- Put in place a system for spotting PEPs of any stripe.
- If they’re foreign, slap them with EDD.
- If they’re domestic, do a risk assessment. If they’re low or standard risk, job done – although surely monitoring will come into it, in case they grow dodgier with time (or in case your own jurisdiction does… heavens, I feel another blog post coming on). If they’re high risk, see step 2.