The Wolfsberg Group has recently published updated guidance as to how financial institutions should handle the money laundering risks posed by PEPs. This updates the guidance initially issued in 2003 and the Frequently Asked Questions issued in 2008. The updated guidance lays out what the Wolfsberg Group considers to be the most effective way of managing PEP risk, which is to position the PEP control framework as part of the risk based approach to the identification and management of financial crime risk, specifically as part of a holistic customer risk assessment process.
This guidance therefore gives due consideration to the forthcoming Forth Money Laundering Directive, by strongly encouraging the use of a risk based approach in the management and mitigation of PEP risk. Indeed, as the overall definition of who should be treated as “politically exposed” expands, for example by including domestic as well as foreign PEPs, the Wolfsberg Group notes that the risk based approach becomes even more important as the greatest effort should centre on those PEPs who pose the very highest corruption risk. In other words, the definition of what constitutes a PEP should not, according to the Wolfsberg Group, be diluted by the inclusion of persons who may be in public life, but are not in a position to enrich themselves improperly, as this would lead to an inefficient allocation of resources, poor customer experience and, in extreme cases, to the denial of financial services to those in public life, their relatives or close associates.
The full guidance can be read here.