Now and forever

As regular readers will know, I have a great fondness for Guernsey.  It has a mild climate, lovely scenery, excellent food – and a rather admirable AML regime.  (That last bit doesn’t make it into the VisitGuernsey brochures or telly ads, but it matters a lot to me.)  In many respects, the Guernsey AML regime takes a more pragmatic, more workable and indeed more demanding approach than that of the UK.  But in one key area the Guerns have it wrong, and those who are reading this will know what I am going to say.  Yes, it’s their definition of PEPs.  Well, not the definition exactly, but rather their longevity.

As was first suggested by the Third Money Laundering Directive *wavy lines to suggest time shift back to 2005* and then confirmed by the Fourth one, PEPs can be de-PEPped when they have been out of power for a year.  Or, to put it in official terms: “Where a politically exposed person is no longer entrusted with a prominent public function by a Member State or a third country, or with a prominent public function by an international organisation, obliged entities shall, for at least 12 months, be required to take into account the continuing risk posed by that person and to apply appropriate and risk-sensitive measures until such time as that person is deemed to pose no further risk specific to politically exposed persons.”  Now I have talked before about how I don’t think a year is quite long enough, and how – if they’d bothered to ask me, which they didn’t – I would have advised, say, five years.  And I have also said that I think the Guernsey approach (shared by Jersey and the Isle of Man) is barking: in those three jurisdictions, it’s once a PEP, always a PEP, with only the shuffling off of the mortal coil putting an end to the EDD.

And so it was with feverish anticipation that I clicked on the draft amendment to Guernsey’s AML legislation that was issued last week for consultation.  I’m leaving the real excitement of a close read and a red pen mark-up until Friday (I used to be a schoolteacher, and always have a red pen to hand) but I couldn’t resist a peek at the PEPs.  In all honesty, I had fully anticipated the ditching of the eternal PEP – but then I thought we’d vote Remain and that the Americans would choose Clinton.  And indeed my unerring streak of mis-prediction continues, for there it is in the draft amendment: “’politically exposed person’ means… a person who has, or has had at any time, a prominent public function…”  I may need a really thick red marker for this one.

This entry was posted in AML, Due diligence, Legislation and tagged , , , , , , , , . Bookmark the permalink.

9 Responses to Now and forever

  1. CDWOS says:

    Susan,

    Your glowing references to the “other” Island in your introduction would require challenge as it is the “other” Island but to state, not even imply!!, that we are “barking” is a step too far……………!!!!
    I am biased but I have to say I don’t share in any way your problem with the once a PEP always a PEP approach.
    The wrong’uns (and quite a few are or become so) can be and are extremely dangerous and by dint of their position, power and above all address book in a position where they can for their entire lives dominate, bully, murder and extort – your mate ‘pineapple face’ would seem to fit the bill admirably meeting all these criteria………………….. One needs to go into these relationships eyes fully open. I rest my case.

  2. I quite agree about the nastiest of PEPs, CDWOS – and of course MLD4 (and the regs that flow from it) does not prevent the MLRO from keeping someone in the PEP category forever if they so wish (you can always exceed the legal minimum).
    My concern is at the other end of the scale, when you have PEPs who are only just PEPs, by dint of some political position. With the current requirement, they are PEPs forever, as are their children and grandchildren, and to my mind this simply bloats the number of people who are PEPs without accurately reflecting their actual level of risk. Is the grand-daughter of a Guernsey deputy really a PEP for her whole life? And if you have a bloated and in many cases unrepresentative PEP category, staff in regulated institutions will stop taking it seriously and will start downgrading it in their minds.
    Of course, others – like you – may feel differently, and obviously the Guernsey legislators do! I’m pleased that we can stimulate debate like this – I’d like to understand the thinking behind it, and then I might even change my mind. And I meant “barking” in the nicest possible way – I’m a dog lover, after all!

  3. CDWOS says:

    Thank you for your reply. In response in several firms that I have worked for over the years we have differentiated between the “direct” and “indirect” PEP to 1. demonstrate the application of thought and the risk based approach and 2. to try and make life simpler from the CDD approach to ID and Verification of Identity. The direct had a ‘direct’ interest and could drive the relationship with you or held a personal investment in the product you sell therefore they needed the ‘full’ CDD treatment the “indirect” did not meet any of the criteria mentioned above so were simply present in the relationship and whilst being risk rated high (not an option in our regulatory framework – all PEPs are required to be designated High risk -) they only needed to be identified as there was no element of ownership, capital interest or control…….if all that makes sense to you.

  4. A very helpful distinction – thank you. But wouldn’t it also help to be able to get rid of those second-tier, “indirect” PEPs after a while, if only for monitoring purposes…?

  5. Nick says:

    I’m in the ‘Once a PEP, always a PEP’ camp and once they’re dead and buried, I would keep an eye on their relatives, close friends and associates(RCA). However, whilst I agree that EDD should be applied, the timeframe for the application of this due diligence can be proportionate to the perceived level of risk each PEP and RCA pose. Therefore as you suggest we are applying a RBA to these people, but lets not let them drop off the radar altogether.

  6. I don’t think there’t anything stopping an institution having a “once a PEP, always a PEP” mentality (for instance, if you provide high risk products/services, or operate in high risk jurisdictions): I’m just not convinced of the wisdom of enshrining it in legislation for all PEPs. But perhaps I have overestimated the CDD burden that this places on MLROs – certainly I thought more would rally to the cause of getting rid of forever-ness. I’m most concerned about making MLROs’ lives easier, so if you’re not bothered about PEPs forever, I’ll gladly stop worrying about it!

    • CDWOS says:

      Susan,
      As someone who has spent more years than I care to admit in the finance sector and as a MLRO who has spent I don’t particularly see the ‘indirect’ PEP as causing a massive CDD burden. I think that maybe the point from a MLRO’s perspective (in our ‘criminalised’ role where we not allowed like others to have made a mistake) there may well be a view that it is better to have done something about these people than to have classified them as “no longer PEP” when they still have their PEP address book and family connections and can subsequently wreak havoc and inflict damage. It may be nothing more than they were within your grasp and you (albeit legally) let them go – regulatory guilt by the implication that you did nothing even though it was entirely legal for you to have taken that stance.

      Just a thought or two.

  7. Fascinating post! Does the Guernsey law mean that any institutions based on the Island will mark PEPs for all time, or is it only PEPs from Guernsey who are PEPs for ever?

    • Welcome to the blog, Nick, and thank you for your question. No, for Guernsey institutions it’s “PEPs forever” for PEPs from anywhere. In fact, for their local “domestic” PEPs, that’s the one category where they might be able to downgrade, if their risk-based approach suggests that all money laundering danger from an ex-PEP has dissipated. Although you wouldn’t know it from the comments on this post, I have been told by many Guernsey PEPs that it is a pain in the proverbial, not least because if they are gathering CDD details from an institution overseas about someone who used to be a PEP, that overseas institution will not have retained the PEP-relevant data because – as far as they are concerned – the PEP status is done and dusted. Always tricky when you have different standards in different countries – but particularly so when you are the MLRO trying to meet the (significantly) higher standard. Best wishes from Susan

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s