The Hindu Business Line : Minding those who meddle with money

Papers of a new customer are before you. Your deputies in the bank have already interviewed him and done all the prescribed due diligence. Only, your stamp of approval is needed. A queasy thought crosses your mind even as you toy with your pen, "How do I ensure he doesn't bring in loads of crime money to stash in here?" There is none to give you an assuring answer; and so, you mutter a prayer, draw in a deep breath and take the plunge...

Imagine an alternative scenario. You type in the name of the prospective customer, and the computer skims through myriad sources to show all critical information about the prospect, who may well be a `politically exposed person' or PEP.

But who are PEPs? They are "individuals who are or have been entrusted with prominent public functions in a foreign country, for example Heads of State or of government, senior politicians, senior government, judicial or military officials, senior executives of state-owned corporations, important political party officials," explains www.fatf-gafi.org, the site of the Financial Action Task Force (FATF).

"Business relationships with family members or close associates of PEPs involve reputational risks similar to those with PEPs themselves. The definition is not intended to cover middle ranking or more junior individuals in the foregoing categories," it adds, in a page titled `Key Topics, 40 Recommendations Glossary'.

One learns that the `Forty Recommendations' provide "a complete set of counter-measures against money laundering covering the criminal justice system and law enforcement, the financial system and its regulation, and international co-operation."

Key recommendation

Recommendation 6 is important for bankers: "Financial institutions should, in relation to politically exposed persons, in addition to performing normal due diligence measures: a) Have appropriate risk management systems to determine whether the customer is a politically exposed person; b) Obtain senior management approval for establishing business relationships with such customers; c) Take reasonable measures to establish the source of wealth and source of funds; d) Conduct enhanced ongoing monitoring of the business relationship."

A simple search for `politically exposed persons' on Google yields interesting results. The first is Wolfsberg FAQ on www.wolfsberg-principles.com. "The Wolfsberg Group is an association of twelve global banks, which aims to develop financial services industry standards, and related products, for Know Your Customer, Anti-Money Laundering and Counter Terrorist Financing policies," informs the home page.

`Ill-gotten assets of PEPs' is the title of a page on www.eda.admin.ch, the site of the Federal Department of Foreign Affairs (DFA), which is `responsible for representing Switzerland's interests abroad'. The site notes, "Switzerland is probably the only state that can claim more than twenty years of experience in the area of the restitution of dictators' assets."

Two-step process

The following two-step process is international standard, says www.worldcompliance.com: One, identify the PEPs amongst your clientele. And, two, ensure that funds managed by your organisation on behalf of the PEP do not derive from a corrupt source. An ongoing exercise, therefore. Which is why, "a global PEP database covers more than 240 countries, faces different languages, needs to be maintained constantly and consequently contains a lot of data," as the site says.

The Miami-based firm's database contains `more than 420,000 profiles'. What a number! `Satellite research centres' are located in places such as `the Caribbean, China, India, Latin America, Middle-East and Russia', to study every month more than 25,000 new profiles and update about 5,000 profiles.

`Prime Compliance Databank' on www.primeassociates.com has many lists apart from PEP; such as, FEP (financially exposed person) and PMLC (Primary Money Laundering Concern). Find on www.ffiec.gov, FFIEC (Federal Financial Institutions Examination Council) Bank Secrecy Act/Anti-Money Laundering InfoBase and Manual. LexisNexis (w3.nexis.com) speaks of `PEP Desk Database' containing "a comprehensive list of approximately 120,000 very clearly defined PEPs in more than 200 listed countries and territories."

Public figures and associates

Factiva (www.factiva.com), from Dow Jones and Reuters, offers PFA (Public Figures & Associates) service for the purpose. Its database contains `over 500,000 profiles', as "a comprehensive and up-to-date guide to the identities of government officials, politicians, and people of political influence around the world." It boasts of `a much wider range of power brokers than other international almanacs'.

Its latest newsletter, Money Laundering Global Media Benchmark, opens with situation analysis thus: "In today's global economy, organised crime groups generate huge sums of money by drug trafficking, arms smuggling and financial crime. Dirty money is of little use to organised crime because it raises the suspicions of law enforcement and leaves a trail of incriminating evidence." Which is why criminals go to great lengths `to disguise their illegal profits without compromising themselves', that is, `launder money'.

What's the volume? "The IMF estimates that the amount of money laundering occurring on a yearly basis could range between 2 and 5 per cent of the world's gross domestic product, somewhere between $600 billion and $1.5 trillion." Interestingly, the `benchmark' in the newsletter gives `insight into the press coverage', by skimming through reports during the calendar year 2005.

Channel Islands lead in money laundering; in a set of stacked bars, terrorist financing, corruption, fraud and PEP are piled one above the other. Pakistan portrays a big chunk of corruption, while Angola displays heavy-duty laundering. Augusto Pinochet leads the list of high profile PEPs, followed by Asif Ali Zardari, Sani Abacha and Omar Bongo.

The Bard writes, "Money's a meddler," in The Winter's Tale. And PEPs meddle with money! Yet, when their profiles are captured dynamically and extensively, it would be either the naïve or lucky PEP who thinks his/her activities are secret. Because a resourceful database equipped with a fast query facility can make the watchful regulator a cat near a fishbowl monitoring all the meddling. Perhaps, citizen action groups too need to take a dip into the database to find more about the representatives they send to the House.

http://AccountSpeak.blogspot.com

D. Murali

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