A politically exposed person (PEP) is eager to open a private account with an international bank. In addition to performing the normal CDD, which…

According to global anti-money laundering (AML) and counter-financing of terrorism (CFT) standards, relationships with Politically Exposed Persons (PEPs) present a higher risk for potential involvement in bribery and corruption. Consequently, financial institutions are required to implement Enhanced Due Diligence (EDD) measures. A critical and mandatory step before establishing a business relationship with a PEP is to obtain approval from the institution's senior management. This ensures that senior-level oversight is engaged and that the institution formally accepts the elevated risks associated with the client. While other EDD measures like ongoing monitoring are also necessary, senior management approval is a prerequisite for onboarding.

A. Enhanced ongoing monitoring is a required component of managing a PEP relationship, but it commences after the account has been approved and established.

C. Being a PEP is a risk factor, not an indication of criminal conduct. Contacting law enforcement is only appropriate if there is a specific and reasonable suspicion of illegal activity.

D. A suspicious transaction report (STR) should only be filed when there are grounds to suspect that a transaction involves the proceeds of crime, not simply because the client is a PEP.

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1. Financial Action Task Force (FATF). (2023). International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation – The FATF Recommendations. FATF

Paris

France.

Reference: Recommendation 12

Politically Exposed Persons

page 15. The text explicitly states that for foreign PEPs

financial institutions must "obtain senior management approval for establishing...such business relationships."

2. The Wolfsberg Group. (2017

May). Wolfsberg Guidance on Politically Exposed Persons (PEPs).

Reference: Section 3.2

"Approval

" page 6. The guidance states

"The decision to enter into or maintain a business relationship with a PEP should be taken by senior management with an appropriate understanding of the money laundering/terrorist financing risks and the institution’s risk appetite."

3. Basel Committee on Banking Supervision (BCBS). (2014

January). Sound management of risks related to money laundering and financing of terrorism. Bank for International Settlements.

Reference: Annex 4

"Customer due diligence and acceptance

" Paragraph 21(c)

page 36. The document notes that for high-risk customers

including PEPs

banks should have an approval process at the "senior management level" for establishing the business relationship.