Risks Relating to Politically Exposed Persons in the UAE

A PEP Guide from the CBUAE

The Central Bank of the UAE has recently published it’s newest guide on risks relating to PEPs. The purpose of the recent Guidelines issued by the CBUAE is to assist the understanding and effective performance by the United Arab Emirates Central Bank’s (“CBUAE”) licensed financial institutions (“LFIs”) and to set out the expectations of the CBUAE for all UAE based LFIs to be able to demonstrate compliance with these requirements.
The PEP definition can vary from country to country so it is important to keep an eye on local regulation. Therefore, the Guide has a clear definition of a PEP.

What is a PEP?

A PEP is a natural persons who are or have been entrusted with a prominent public function in the UAE or any other foreign country such as heads of states or governments, senior politicians, senior government officials, judicial or military officials, senior executive managers of state owned corporations, and senior officials of political parties, and persons who are, or have previously been, entrusted with the management of an international organisation or any prominent function within such an organisation; and the definition also includes the following:
Direct family members (of the PEP who are spouses, children, spouses of children, parents) · Associates known to be close to the PEP, which include: o Individuals having joint ownership rights in a legal person or arrangement or any other close business relationship with the PEP; o Individuals having individual ownership rights in a legal person or arrangement established in favour of the PEP. Related Customers: Customers that are the direct family members of a PEP or the associates known to be close to a PEP.

Please keep in mind that: PEP definition can vary from jurisdictions to Jurisdiction.

Domestic PEP:

PEPs who are or have been entrusted with their prominent public position in the UAE are known as “domestic PEPs”;

Foreign PEP:

PEPs who are or have been entrusted with their prominent public position in any other foreign country are known as “foreign PEPs”;

HIos:

PEPs who are or have been entrusted with the management or any prominent function within an international organization are known as “Heads of International Organizations (HIOs)”.
Pep Screening in the UAE:
Under Article 15 of the AML-CFT Decision, LFIs are required to have suitable risk management systems in place to determine whether a customer, or the beneficial owner of a customer, is a foreign PEP, or Related Customer and are required to take sufficient measures to identify whether a customer, or the beneficial owner of a customer, is a domestic PEP or an HIO, or Related Customer.

Classifying Customers as PEPs:

The Guide highlights that a customer can be a PEP (of course!). The Classification of a customer as a PEP should take place during the CDD stage, prior to the commencement of the business relationship.
In practice, however, it will generally be appropriate to conduct onboarding screening and ongoing screening on all customers.

Customer Risk Rating & PEP:

LFIs must conduct enhanced ongoing monitoring over relationship with foreign PEPs and Related Customers.
This does not mean however that such customers should all be automatically assigned the same risk rating.
In addition, for domestic PEPs and HIOs, and their Related Customers, the EDD requirements are mandatory when there is a high-risk business relationship accompanying such persons.
Therefore, it is important to appropriately risk-rate all PEP customers, customers whose beneficial owners are PEPs, and customers that are direct family members and close associates of a PEP.
PEP-specific factors to consider in risk rating include:
· The nature of the PEP’s position. Where a PEP has greater ability to control or influence consequential government decisions, the corruption risk is greater.
· The controls in place in the PEP’s own country jurisdiction to prevent corruption.

Ongoing Monitoring:

Ongoing Monitoring is important. LFIs must perform risk-based ongoing monitoring of the business relationship for all customers.
Conduct enhanced ongoing monitoring of the relationship and take reasonable measures to establish the source of funds, including the source of wealth, of PEPs and Related Customers. In the case of foreign PEPs, higher risk domestic PEPs or HIOs, and Related Customers, LFIs should understand, at least at a high level, how the customer acquired his or her wealth.

Time Limits of PEP Status:

The question of course is Once a PEP always a PEP?
The definition of PEP in the AML-CFT Decision makes clear that a PEP does not cease to qualify as a PEP simply because they no longer hold a prominent public function (i.e. “Natural persons who are or have been entrusted with prominent public functions”).
Nor does a Related Customer cease to require PEP treatment simply because the PEP to whom they are related no longer holds that position.
A PEP’s risk derives from the PEP’s power or influence over decisions, funds, or policy.
Therefore, it may not be appropriate to continue to treat a customer as a PEP long after they have lost such power or influence. On the other hand, if PEP has amassed funds through corruption during his or her period in office, the PEP is likely to wait until being out of office to access or enjoy those funds. This means that the corruption risk remains even if a PEP has been out of office for a certain time. Because each case is different it would not be appropriate for LFIs to apply a universal rule for determining whether a customer is no longer a PEP (e.g. one year after relinquishing the public position).
Therefore, while LFIs may set a schedule to review PEP status, they should make a risk-based decision as to when sufficient time has passed for a customer to no longer be classified as a PEP.
Factors to consider when making such a determination include:
· The seniority, prominence, and power inherent in the customer’s (or the customer’s beneficial owner’s) previous role.
· The corruption potential of the customer’s previous role. Where there was greater opportunity for illicit gain, it is more likely that the customer’s source of funds will continue to be corrupt proceeds for some time after the customer leaves office.
· Whether the customer still exercises informal influence over government decision-making through his or her current formal role (e.g. head of a prominent lobbying organization) or through informal relationships (e.g. the customer is an informal but widely accepted leader of a political party but has no official title).
· Whether the previous and current role of the customer are linked in any way.

Red Flags & PEPs:

A list of red flags and indicators for suspicion associated with PEPs.
1. COUNTRY SPECIFIC RED FLAGS AND INDICATORS
· The foreign or domestic PEP is from a higher risk country.
· Additional risks occur if a foreign or domestic PEP from a higher risk country would in his/her position have control or influence over decisions that would effectively address identified shortcomings in the AML/CFT system.
· Foreign or domestic PEPs from countries identified by credible sources as having a high risk of corruption.
· Foreign or domestic PEPs from countries that have not signed or ratified or have not or insufficiently implemented relevant anti-corruption conventions, such as the UNCAC, and the OECD Anti-Bribery Convention.
· Foreign or domestic PEPs from countries with a mono economies (economic dependency on one or a few export products), especially if export control or licensing measures have been put in place.
· Foreign or domestic PEPs from countries that are dependent on the export of illicit goods, such as drugs.
· Foreign or domestic PEPs from countries (including political subdivisions) with political systems that are based on personal rule, autocratic regimes, or countries where a major objective is to enrich those in power, and countries with high level of patronage appointments.
· Foreign or domestic PEPs from countries with poor and/or opaque governance and accountability.
· Foreign or domestic.
2. PEPS ATTEMPTING TO SHIELD THEIR IDENTITY
3. INDICATORS RELATING TO THE PEP AND HIS BEHAVIOUR
4. THE PEP’S POSITION OR INVOLVEMENT IN BUSINESSES:
5. RED FLAGS AND INDICATORS RELATING TO THE INDUSTRY/SECTOR WITH WHICH THE PEP IS INVOLVED:
6. COUNTRY SPECIFIC RED FLAGS AND INDICATORS

Summary:

Transactions Monitoring is a crucial part of AML Compliance and a risk based approach this is where DX Compliance can assist your organization. Furthermore our Platform support you on the Customer Screening and Customer Risk Rating side as well as on the Suspicious Reporting Part. Feel free to get in touch with us here in the UAE our Abu Dhabi & Dubai Team is there for you and has you covered.

Guide can be Downloaded:

Guidance for Licensed Financial Institutions on the Risks Relating to Politically Exposed Persons