Gone but not un-rotten

Last week a client asked me a question about dead PEPs, and in looking for the answer I realised that this is not a topic addressed by the regulator.  Which is odd, given that it is the inevitable final status of all PEPs.  Everyone’s AML guidance discusses how you should treat PEPs who have left office, but no-one talks about those who have Left Office in the most final sense of all.  Of course, none of us – I don’t think – is imagining that a corrupt PEP will go on laundering money after death.  As someone put it to me, “the risk of someone laundering money or financing terrorism significantly decreases after they shuffle off this mortal coil”.  But although their activity may cease, their wealth does not disappear – and their heirs are still around, and their close associates are still associated.  So I put the question to my AML-obsessed tribe on LinkedIn, and all sorts of issues were raised and debated.

First, it seems that we must draw a risk-based distinction between PEPs who die while in office, and those who pop their clogs during a long and happy retirement from PEP-dom.  If someone is still in the throes of their position of influence, with access to public money, and then falls off the perch, this is a different risk to someone who has been absent from the corridors of power for some time.  Note that I say different risk – not lower risk – because of course it all depends.  We all know of puppet-master PEPs, who no longer have the public title or profile but very much hold the puppet strings of their successor – as another contributor says, “a former PEP’s level of influence can outlive him/her”.

Second – and this was something that I had not appreciated before, so thanks, tribe – the wording of the specific legislation is important.  In the UK legislation, for instance, we have this: “A relevant person must have in place appropriate risk-management systems and procedures to determine whether a customer or the beneficial owner of a customer is (a) a politically exposed person; or (b) a family member or a known close associate of a PEP.”  In other words, the PEP definition refers to the PEP alone – the obligation is to look for PEPs and then also consider their family and close associates.  But in the Guernsey legislation, we have this: “’Politically exposed person’ means… a natural person who has or has had at any time a prominent public function… an immediate family member of [such a person], or a close associate of [such a person].”  Here, the family and close associates are PEPs as well – generally known as “PEPs by association”, but still PEPs.  The dePEPping arrangements are therefore different: in the UK, family and close associates can cease to be of interest the moment the PEP leaves office (or kicks the oxygen habit) – but in Guernsey, they are subject to the same dePEPping timetable as the headline PEP.

And third, the actual answer is, of course, that it all depends.  As with everything AML, it’s a risk-based decision.  You may have a PEP who left office three years ago, after a worthy career unblighted by scandal, and now squawks his last – you are unlikely to be overly concerned about his widow and what she does with the family art collection.  Or you may have Sani Abacha – dead for more than two decades and still causing trouble.  As my grandma advised me when I told her I was engaged: choose carefully, because you’re lying next to them for a long time.

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