FIC guide to identify and combat money laundering
Politically exposed people pose high risk of financial crime due to their influence over public benefits
There is a global move to pay more attention to higher risk clients in financial services, including politically exposed people and their potential role in money laundering.
Businesses can do their part in helping combat financial crime by identifying clients who are politically exposed and applying enhanced monitoring to identify suspicious and unusual behaviour.
According to the Financial Intelligence Centre Act, there are two categories of politically exposed people.
1. Foreign prominent public official
Foreign prominent public officials (FPPOs) generally hold positions of power in foreign countries. They may be a head of state, a government minister or hold a similar position in government. A full listing of FPPOs can be found in Schedule 3B of the FIC Act.
FPPOs are automatically classified as higher risk clients because of their influence and control over public funds and benefits. They also remain classified as FPPOs for 12 months after leaving their official positions.
2. Domestic prominent influential person
Domestic prominent influential people (DPIPs) may hold various senior roles in the SA government, within public entities or be certain officers in the judiciary. They may be a premier of a province, a mayor, leaders of political parties and so on.
They too are regarded as DPIPs for 12 months after leaving their official positions. For the full list of DPIPs refer to Schedule 3A of the FIC Act.
Not all DPIPs are considered high risk for money laundering. Accountable institutions must determine the risk associated with DPIPs, and where a high-risk DPIP is identified, they must apply enhanced controls.
For both categories of politically exposed people, accountable institutions should consider, after the 12-month period has elapsed, whether the former DPIPs or FPPOs still pose a high risk for money laundering.
Why do they matter?
FPPOs and high-risk DPIPs pose a risk for laundering money as they have control over public benefits as well as decision-making. When these people misuse their official positions in a corrupt manner, the impact is far-reaching.
Customer due diligence
Central to all accountable institutions is knowing who their clients are. Accountable institutions are required to establish and verify the identity of clients, ensure they know who they are dealing with and understand the business relationship or purpose of a single transaction.
Customer due diligence requirements are determined within the context of the money laundering, terrorist financing and proliferation financing risks presented by the client.
How to know if the client is a politically exposed person?
When conducting customer due diligence, accountable institutions must determine if their client is a DPIP or a FPPO. They can do this by asking the client to declare their position and/or conducting a relevant search on them. The FIC’s public compliance communication 51 provides useful information on possible data sources that can be used in these instances.
What happens if the client is a politically exposed person?
If the client is an FPPO or high-risk DPIP, accountable institutions need to obtain senior management approval for establishing the business relationship. They must also determine the client’s source of wealth and source of funds, and conduct enhanced and ongoing monitoring of the business relationship.
Often, bad actors who are FPPOs or high-risk DPIPs use legal entities to move funds to create an extra layer between the illicit funds and the criminal who profits from the funds. For this reason, where the client is a legal entity, the accountable institution must identify the beneficial owner and determine whether that beneficial owner is an FPPO or DPIP.
Accountable institutions must submit reports to the FIC where FPPOs or high-risk DPIP clients transact or act in a suspicious or unusual manner. Where FPPOs are concerned, the FIC does not want SA to be a haven for international money laundering. With DPIPs, the FIC wants public funds to be used for the benefit of SA citizens, and for illicit funds to be seized.
For more compliance information and guidance offered to accountable institutions, you can visit the FIC website on www.fic.gov.za. You can also contact the FIC’s compliance contact centre on +27 12 641 6000.
This article was paid for by the Financial Intelligence Centre.