All regulated firms have guidance as to how deal with a Politically Exposed Person (PEP). From applying enhanced due diligence to seeking senior management approval the guidance is there. The MLR 2017 regulations (specifically Regulation 37) defines what a PEP is along with who is a family member or close associate (FCA) of a PEP. A PEP who leaves office is considered a PEP for at least 12 months after leaving office. So far, so simple. But what happens when a PEP or an ex-PEP dies?
On death it is fair to say that the PEP is no longer a problem. But what about their family and friends? A PEP with access to public funds who is embezzling money stops their criminal activity at death, but the money still remains. Their family and close associates are still alive and enjoying the fruits of the PEPs dishonesty. Under the definition of a PEP in Regulation 37 the friends and close associates no longer meet the definition, so it could be argued that you no longer have to treat them as FCA’s of a PEP. A fair point, but not necessarily the right thing to do.
As with all things in AML, apply a risk based approach. As the HMRC guidance states a PEP or FCA from a low-risk jurisdiction with well tested controls in place to prevent corruption can be treated as low-risk PEP. PEP’s from high-risk jurisdictions with high levels of corruption should have enhanced due diligence applied and particular attention given to their source of funds and the source of their wealth as well as that of their FCA’s. The same should apply after they have left office, or indeed if they pass away. Their wealth passes to their family and potentially their close associates, the money is still the result of corruption. Using a risk based approach you should continue to consider links to PEP’s who are no longer alive and explore the source of wealth asking for evidence. Do not just accept the explanation that money was inherited with a Will, or Probate as evidence. Ask questions as to how the original wealth was earned and check the answers wherever possible. Corruption can outlive the corrupt person.
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