Chaos theory?

Regular readers will know that I do a lot of work in Guernsey, and that in general I am a supporter of that jurisdiction’s approach to AML.  However, one issue on which we – Guernsey and I – have long differed is dePEPping.  (For the confused, this is the point at which you can consider a Politically Exposed Person no longer to be a PEP because he has left the office which PEPped him in the first place.)  Under the last two EU Directives – MLD3 and MLD4 – dePEPping occurs twelve months after the PEP has stopped doing his PEPpish activity.  (It’s in Article 22 of MLD4.)  Now, I’m not saying that I agree with that; personally, I think it’s a bit too soon.  However, Guernsey has always gone to the other end of the spectrum and has declared (I’m paraphrasing here) “once a PEP, always a PEP”.

But now Guernsey is in the throes of updating its AML legislation.  This round of updates has been, for various reasons, a tortuous and often torturous process but – like a worn-out mare at the Grand National – I feel that I have cleared the Chair and now have only the Water Jump between me and the finish line.  Draft legislation – the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) (Amendment) Ordinance, 2018 – has been all but agreed and is queued for rubber-stamping at the next meeting of the appropriate bit of the government, on 12 December.  And in this shiny new legislation, dePEPping looms large – and complicated.

What Guernsey has done is to create a definition of dePEPping which is – to my mind – a masterful encapsulation of the risk presented by PEPs.  There are now three categories of PEP – domestic PEPs, foreign PEPs and IOPEPs (who work for international organisations) – and they are dePEPped at different points:

  • domestic PEPs can be dePEPped five years after they leave their PEPpish role
  • foreign and IOPEPs can be dePEPped seven years after their leave their PEPpish role, unless they are a tip-top PEP (e.g. head of state or head of their international organisation) or “have the power to direct the spending of significant sums” – either of which means you can never dePEP them.

As I say, I think this is an excellent reflection of the level of risk presented by various flavours of PEP.  But pity the poor MLRO (or, as Guernsey will soon have it, ML Compliance Officer) who has to design the policies and procedures to reflect this new set-up.  The theory is excellent but I fear that the practice will prove a nightmare.  When creating an AML regime, a vision of the perfect must always be tempered by consideration of the possible.

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6 Responses to Chaos theory?

  1. Alex Erskine says:

    Love it! “vision of the perfect must always be tempered by consideration of the possible“!

  2. Robert J Long says:

    The greatest enemy of a good plan is the dream of a perfect plan. Clausewitz. I think.

    I think I prefer Guernsey’s attitude to De-PEPing. All to often ex-ministers and others till have a lot of pull with governments even after they are no longer in theory serving in them, so I don’t think that they cease to be PEP’s. IF anything I think ex-PEP’s could be a ML risk all of there own.

    • CDWOS says:

      Robert, Agreed. My own take is that logically once out of office their address book becomes their lifeline and source of power, favour and graces. Never really understood the “de-pepping” after 2 years, they are only getting into their stride, muscle flexing and calling in favours by then.

      • I’m with you both on the accuracy of the definition – I certainly think that PEPs retain (and perhaps even increase) their influence for years after leaving office. My concern is that the new Guernsey definition is hard to implement in an international environment. That’s not to say that it shouldn’t become the international standard – I’d certainly support that – but that it will be hard for Guernsey MLCOs to be in the vanguard.

  3. Pingback: Keeping up with the Joneses, les Dubois and die Schmidts | I hate money laundering

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