ABA Banking Journal - June 2008 - (Page 52)
Compliance Clinic Handling PEPs in the age of “L’affaire Spitzer” hen the illicit activities of former New York Governor Elliot Spitzer came to light earlier this year, culminating in his resignation in mid-March, some news organizations noted that his activities first came to law enforcement’s attention due to banks’ filing of Suspicious Activity Reports. Some accounts referred to Spitzer being a PEP—politically exposed person—and being subject to mandatory monitoring by financial institutions under Bank Secrecy Act/anti-money-laundering guidelines. At least one major TV news network—possibly confusing legal requirements with the features of some BSA/AML monitoring software—reported: “There’s one other group of customers who get assigned a high-risk score. ‘PEPs,’ or Politically-Exposed Persons. That’s judges, party officials and politicians. As a governor and former attorney general, Eliot Spitzer would have known better than anyone that he was a ‘PEP,’ and therefore that his financial dealings were an open book….” To which a bank compliance officer, posting a comment on an online chat board, observed: “Did our bank miss something? We’ve always thought PEPs, as defined in the regulations, were foreign parties.” The banker is right. To clarify this issue, here are some key questions, and their answers. W Enforcement Network, the term “‘senior foreign political figure’ includes: a current or former senior official of a foreign government or of a major foreign political party; a current or former 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; the immediate family members of any such individual; and the widely and publicly, or actually, known close associates of any such individual.” h t t p : / / w w w. f i n c e n . g o v / f i n - 2 0 0 8 Former New York g005.pdf Governor Spitzer You may wonder whether the term was not a PEP, “politically exposed person” (PEP) and press mistakes to the contrary. “senior foreign political official” are synonymous. In fact, these terms are used interchangeably. According to the 2007 BSA/AML Examination Manual, from the Federal Financial Institutions Examination Council, the term “senior foreign political officials” are often referred to as “politically exposed persons.” http://www.ffiec.gov/bsa_aml_ infobase/pages_manual/OLM_087.htm Should we consider domestic political figures to be PEPs? No. According to the statutory definition of a “senior foreign political official” found in 31 CFR Section 103.175(r), this term is reserved for current or former senior officials of a foreign government or of a major foreign political party. There are no references in the statutory language designating domestic officials. What are my institution’s obligations to monitor these customers? The 2007 BSA/AML Examination Manual identifies the roles and responsibilities of financial institutions, indicating that “[b]anks should take all reasonable steps to ensure that they do not knowingly or unwittingly assist in hiding or moving the proceeds of corrupHANDLING PEPS continued on page 56 Subscribe at www.ababj.com What is a “politically exposed person”? According to recent guidance issued by the Financial Crimes By Sepideh Behram, general counsel at the Bankers’ Association for Finance and Trade. Behram was formerly senior compliance counsel, American Bankers Association, and specialized in Bank Secrecy Act and anti-money-laundering issues. At BAFT, an ABA affiliate, she will cover international aspects of these issues. 52 JUNE 2008/ABA BANKING JOURNAL
Table of Contents for the Digital Edition of ABA Banking Journal - June 2008
ABA Banking Journal - June 2008
Do Fee-based Services Have an Edge?
Snapshot: Net Interest Margins Vary Sharply with Size
100th Anniversary: Then & Now
ABA Chairman’s Position
"What? No Annual Surprise Bonus?"
Pass the Aspirin
Cover Story: Top Community Banks: How They Did...
...And How They Did It
First East Side Savings Bank
Mackinac Financial Corp.
The Peoples Bank
Managing the E-mail Monster
Handling PEPs in the Age of "L'affaire Spitzer"
To Advertise/Index of Advertisers
ABA Banking Journal - June 2008