How to detect misuse of the financial system by PEPs? and PEP behaviour red flags.

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How to detect misuse of the financial system by PEPs? and PEP behaviour red flags.
03
Feb

How to detect misuse of the financial system by PEPs? and PEP behaviour red flags.

How may PEPs attempt to disguise their true Identity?

PEPs Know that their distinction as a Politically exposed Person (PEP) may make easy the unmasking of their illicit behaviour. This means that PEPs may knowingly try to disguise their identity, to prevent any exposure. Here are few examples:

  • Using corporate vehicles (legal entities) to hide the beneficial owner and create confusion.
  • Using corporate vehicles without valid a business or business reason.
  • Using third-party intermediaries when this does not match with normal business practices or to disguise identity of PEP.
  • Using close family members or confidants as legal owner.

What are the behaviour Red flags with PEPs?

  • Use of corporate vehicles (legal entities) to hide A) ownership, B) involved industries or C) jurisdictions/countries.
  • They make inquiries about the financial institution’s Anti-Money Laundering (AML) policy or Politically Exposed Person (PEP) policy.
  • If an individual seems dolorous to provide information about source of wealth and funds.
  • The information provided by the individual is contrary with other public records, such as asset and liability declarations and published official salaries etc.
  • Unable to explain the reason for doing business in the country of the financial institution or Designated Non-Financial Business or Profession (DNFBP).
  • Inaccurate or incomplete information.
  • Using the services of a financial institution or Designated Non-Financial Business or Profession (DNFBP) that would not normally serve to foreign or high value customers.
  • Continuous movement of funds to and from countries to which the PEPs does not seem to have any links with.
  • The PEP has been denied entry clearance to the country by Immigration authorities.
  • The PEP is from a country that prohibits its citizens to open and hold accounts or own certain property in a foreign land.

What is the most common industry/sector PEPs are involved with?

  • Arms trade and defence industry
  • Banking and finance industry
  • Businesses active in supplying government or state agencies
  • Construction and infrastructure
  • Human health activities
  • Mining and extraction of metals
  • Privatisation
  • Provision of public goods and utilities
  • Financial consultancy

What are the high-risk countries/jurisdictions for money laundering and terrorist financing?

The current list consists of 22 countries that have been currently identified as high-risk third countries for money laundering and terrorist financing as per the EU’s 5th Money Laundering Directive:

  • Afghanistan
  • The Bahamas
  • Barbados
  • Botswana
  • Cambodia
  • Democratic People's Republic of Korea (DPRK)
  • Ghana
  • Iran
  • Iraq
  • Jamaica
  • Mauritius
  • Mongolia
  • Myanmar
  • Nicaragua
  • Pakistan
  • Panama
  • Syria
  • Trinidad and Tobago
  • Uganda
  • Vanuatu
  • Yemen
  • Zimbabwe

What are the top 20 high risk countries as per Basel AML index 2020?

The Basel AML Index which is published by the Basel Institute on Governance since 2012 is an annual ranking that assesses the risk of money laundering (ML) and terrorist financing (TF) around the world.

  • 1. AFGHANISTAN
  • 2. HAITI
  • 3. MYANMAR
  • 4. LAOS
  • 5. MOZAMBIQUE
  • 6. CAYMAN ISLANDS
  • 7. SIERRA LEONE
  • 8. SENEGAL
  • 9. KENYA
  • 10. YEMEN
  • 11. CAMBODIA
  • 12. VIETNAM
  • 13. ANGOLA
  • 14. NIGERIA
  • 15. BENIN
  • 16. NICARAGUA
  • 17. COTE D'IVOIRE
  • 18. CHINA
  • 19. ALGERIA
  • 20. VENEZUELA
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