The AMLA contains provisions prohibiting politically exposed persons (PEPs) from falsifying the source of funds, ownership or control of assets, or concealing or misrepresenting such information to a financial institution. Any violations of the above prohibitions are subject to fines, imprisonment, or forfeiture. Entities that are of primary money-laundering concern face similar prohibitions.
Neither Bank Secrecy Act/Anti-Money Laundering (BSA/AML) regulations nor the AMLA defines the term “Politically Exposed Person”. However, US government agencies have stated that they do not interpret the term to include U.S. public officials. The term “PEP” is customarily used in the financial industry to refer to foreign individuals who are or have been entrusted with a prominent public function, as well as their immediate family members and close associates. By virtue of their position or relationship, such individuals may pose a higher risk that their funds may be the proceeds of corruption or unlawful activities.
Although due diligence must be performed on accounts and transactions conducted by PEPs, not all such transactions and accounts are necessarily higher risk. The level of risk associated with PEPs varies in accordance with the country of legal residence, the prior history associated with the individual, and the type of activities conducted by the individual.
FinCEN provides guidance that PEPs should not be confused with the term “Senior Foreign Political Figure” (SFPF), which is defined under the BSA regulations. FinCEN guidance states that Senior Foreign Political Figures are a subset of PEPs.
BSA regulations define the term Senior Foreign Political Figure as “a current or former senior official in the executive, legislative, administrative, military or judicial branches of a foreign government (whether elected or not); a senior official of a major foreign political party; or a senior executive of a foreign government-owned commercial enterprise; a corporation, business, or other entity that has been formed by, or for the benefit of, any such individual; an immediate family member of any such individual; and a person who is widely and publicly known (or is actually known by the relevant covered financial institution) to be a close associate of such individual.”
In the United States, AML obligations with respect to PEPs include specific enhanced due diligence obligations for private banking accounts that are established, maintained, administered, or managed in the United States for senior foreign political figures, and general due diligence procedures required for all politically exposed persons. Applicable due diligence policies should be incorporated into the financial institution’s anti-money laundering program.