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The Realistic Challenges of PEP Determination – Is It Time for a Change?


2018-08-03 00:00:00

By Glenna Smith, Managing Director, Smith Compliance Consulting

 

While it is clear that there are valid reasons for completing Politically Exposed Person (PEP) determinations, the process could use the application of a common sense approach on a case-by-case basis.

At the moment, people in perceived positions of power are regarded as potentially vulnerable to corruption, and must be flagged as PEPs, as well as their spouses, close associates and family members.  That makes some sense, because one can have a public figure that abuses their power and co-opts friends and family members to help them channel funds siphoned from the public purse.

But the problem is that, since the release of international guidelines on PEP determination, service providers have come to realise that its application and ongoing maintenance is starting to raise challenges in certain cases. The PEP list just keeps getting bigger and longer, with people being added as PEPs, but no one is ever deleted.  For example, a PEP may leave public office, but they must remain on the PEP list and be treated as a high risk customer – for life!

Now that we have had several years’ experience in trying to deter and detect corruption, to make our world a more transparent and legitimate economy, service providers are seeing the need for a revision of the guidelines.  Many have come across cases where there is clear justification for the removal of an individual from the PEP list.   For example, it may be that someone has retired from the PEP position many years ago, or is ageing and in poor health, or is no longer politically connected or active.   

Let’s revisit why we have to determine who is a PEP.  Some say it started with the activities of Sani Abacha, the former military dictator of Nigeria, who, in just five short years (1993 to 1998), is alleged to have diverted a reputed £5 billion from the public purse into personal foreign bank accounts.

Many others have followed Mr. Abacha’s example, so one might well ask why service providers think there is a need for some flexibility in the application of the PEP determination process.

The answer relates to the associated parties captured in the process, and also to the fact that relationships and people change over time. Take the more obvious case of a divorced spouse, married many years ago to a PEP and, therefore, also tagged as a PEP by association.  Is it fair, or realistic, where it can be shown that separation from the PEP is absolute and the individual has not benefitted from the corruption in question, for that person to remain on the PEP list?

It is in cases like this, where the original circumstances resulting in PEP determination have changed dramatically, that service providers feel a more flexible, common sense approach is appropriate.  It is time for a change.

Source: Barbados International Finance & Business 2018



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