As I was writing my previous blog post, a little thought tweaked at the corner of my mind. It’s not terribly well-formed (either the thought, or indeed the mind), but here goes. I was thinking about PEPs and monitoring, and of course one of the elements that you check when monitoring a relationship is the current standing of the jurisdictions concerned. So a client from Syria, let’s say, might have been perfectly ordinary a decade ago but requires much closer scrutiny today, whereas one from Bulgaria, for instance, would have been a much more risky proposition before his country joined the EU in 2007. (Simplistic examples, to be sure, but you get the point.)
But what if you are a regulated firm actually in a high risk jurisdiction? Do you recognise your own high risk status and allow accordingly? If you are shading your domestic PEPs, as we were discussing earlier in the week, does the high risk nature of your whole jurisdiction (as seen by the rest of the world) influence you into labelling them all high risk? Do MLROs in high risk jurisdictions start all their risk assessments from a higher point? Or is there a (perhaps natural) tendency to think that others are exaggerating your high risk status, or that your own understanding of how things work in your own country reduces the risk for you?
I did note that the new Isle of Man legislation (which is how we got onto this domestic PEP jag in the first place) talks not of “high risk” domestic PEPs, but of “higher risk” ones, which allows for a ranking rather than a strict delineation. (You can say that all of your domestic PEPs are high risk, but it would be illogical to say that they are all higher risk – for some to be higher, others must be lower. I bet you’re glad you started reading this. Never mind: it’s nearly elevenses and you can have a reviving Jaffa Cake.)
I hate money laundering 
It’s something thats bothered me for a long time Sue. How can an entity in Nigeria, not consider their PEPs to be high risk as they are domestic yet, anyone would be foolish (or even negligent) to not think that these are significantly higher risk than a PEP in, say, Isle of Man? It makes no sense to me, AND i’m out of Jaffa cakes. Bad day all round.
You’re completely right, Kay – but I daresay that cultural sensitivities come into it, and everyone probably thinks that their own jurisdiction is lower risk than the rest of the world does! I grant that there is some mileage to get from really knowing a place, as you do your own country and how it works, but we must be realistic: how much do I, for example, REALLY know about PEPs in the UK and how corrupt or otherwise they are? I know how they are perceived – that’s the local knowledge coming into play – but I don’t know the truth about them any more than I do about, say, Dutch PEPs or Nigerian ones.
You should have contacted me earlier about the Jaffa Cakes – I bought a twin pack at the weekend and could have couriered some over.
Best wishes from Sue
Not strictly related to PEP monitoring but I am reminded of the FSA sanction against Habib Bank AG back in 2012. There was a failure in its classification of high risk / low risk jurisdictions and, with reference to your question, they removed certain countries from high risk status because Habib thought they had particular knowledge of those countries (Pakistan and Kenya). As a result a large number of customers (potentially including PEPS) were not considered for EDD. Obviously that interpretation did not end well for Habib.
This is an excellent example, Gary – thanks for reminding us. For everyone else, here’s the link to the FSA Final Notice on Habib: http://www.fsa.gov.uk/static/pubs/final/habib-bank.pdf The bits to read concerning the mis-application of local knowledge are 2.6(b) and 4.6(a).
With regard to your point on MLROs in higher risk jurisdictions reminds me of a review of a large global bank operating in the gulf; customers from elsewhere in the gulf were considered as ordinary risk even though several of those countries had well known deficiencies.
This is interesting, Gary – an example of “local” being wider than your own jurisdiction. Reminds me of the voting “blocs” in the Eurovision Song Contest! You scratch my back (by considering me low risk) and I’ll scratch yours (ditto). All very neighbourly, but rather dangerous.
Best wishes from Susan