US eases due-diligence rules for PEPs

Monday, 24 August 2020
US banks should not automatically apply special additional due-diligence procedures to politically exposed persons (PEPS), the US government has announced.

PEPs are senior politicians and officials of foreign governments and their families, and, due to this public standing, can be regarded as posing a higher risk of money laundering linked to corruption.

A statement issued jointly by several federal agencies this week notes instead that banks should apply customer due-diligence (CDD) procedures appropriate to the actual risk associated with the client.

Thus PEPs that conduct few transactions, have modest funds from known legitimate sources, or have only limited access to public funds, can be treated as having lower risk profiles, says the US Treasury's Financial Crimes Enforcement Network (FinCEN).

FinCEN emphasised that 'the money-laundering threat posed by corruption of foreign officials continues to be a national security priority for the United States', but added that PEP relationships present varying levels of money-laundering risk. 'The CDD rule does not create a regulatory requirement, and there is no supervisory expectation for banks to have unique, additional due diligence steps for customers who are considered PEPs', it said.

The advice is part of a wider re-statement by FinCEN about its enforcement of the Bank Secrecy Act, which is the US' main anti-money laundering legislation. In particular, it stated that its policy does not aim to catch out financial institutions for failing to follow guidelines precisely.

'When FinCEN takes an enforcement action, it will seek to establish a violation of law based on applicable statutes and regulations', said its Director Kenneth Blanco in a statement last week. 'FinCEN will not treat noncompliance with a standard of conduct announced solely in a guidance document as itself a violation of law. Regulated parties will be afforded an opportunity to respond to and contest factual findings or legal conclusions underlying any FinCEN enforcement action.'

Prosecutions will only be launched based on considerations of the nature and seriousness of the violations, the harm done, the history and pervasiveness of wrongdoing in an institution, financial gain, and the level of cooperation offered, said FinCEN.


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