Prevention of money laundering and the financing of terrorism
6.67 A PEP is an individual who is entrusted with prominent public functions, other than middle-ranking or more junior officials, including the following individuals:
- heads of state, heads of government, ministers and deputy or assistant ministers
- members of parliament or of similar legislative bodies
- members of the governing bodies of political parties
- members of supreme courts, constitutional courts or other high-level judicial bodies whose decisions are not subject to further appeal, except in exceptional circumstances
- members of courts of auditors or of the boards of central banks
- ambassadors, chargés d’affaires and high-ranking officers in armed forces
- members of the administrative, management or supervisory bodies of state-owned enterprises
- directors, deputy directors and members of the board or equivalent function of an international organisation (Regulation 35(12) and (14). See paragraph 6.79 in relation to the treatment of PEPs.)
6.68 The following individuals are also regarded as PEPs by virtue of their relationship or association with the individuals listed above:
- family members of the individuals listed above, including spouse, partner, children and their spouses or partners, and parents
- known close associates of the individuals listed above, including individuals with whom joint beneficial ownership of a legal entity or legal arrangement is held, with whom there are close business relations, or who is a sole beneficial owner of a legal entity or arrangement set up for the benefit of the PEP (regulation 35(12). See paragraph 6.79 in relation to the treatment of family members and known close associates of PEPs.)
6.69 When deciding whether an individual is a known close associate of a PEP, casino operators need only consider information which is in their possession, or credible information which is publicly available (regulation 35(15)).
6.70 PEP status itself does not incriminate individuals or entities. It does, however, put a customer into a high risk category.
Risk-based approach to PEPs
6.71 The nature and scope of a particular casino’s business will help to determine the likelihood of PEPs in their customer base, and whether the casino operator needs to consider screening all customers for this purpose.
6.72 Establishing whether individuals are PEPs is not always straightforward and can present difficulties. Where casino operators need to carry out specific checks, they may be able to rely on an internet search or consult relevant reports and databases on corruption risk published by specialised national, international, non-governmental and commercial organisations. Resources such as the Transparency International Corruption Perceptions Index, which ranks approximately 150 countries according to their perceived level of corruption, may be helpful in assessing the risk. Another useful source of information is www.knowyourcountry.com. The International Monetary Fund, World Bank and some non-governmental organisations also publish relevant reports. If there is a need to conduct more thorough checks, or if there is a high likelihood of a casino operator having PEPs for customers, subscription to a specialist PEP database may be a valuable tool in assessing the risk.
6.73 New and existing customers may not initially meet the definition of a PEP, but that position may change over time. Equally, individuals who are initially identified as PEPs may cease to be PEPs. For example, the Regulations provide that casino operators must continue applying enhanced customer due diligence to PEPs for at least 12 months after they cease to hold a prominent public function. The casino operator should, as far as practicable, be alert to public information relating to possible changes in the status of its customers with regard to political exposure. Casino operators should be alert to situations which suggest that the customer is a PEP. These situations include:
- receiving funds from a government account
- correspondence on an official letterhead from the customer or a related person
- general conversation with the customer or related person linking the person to a PEP
- news reports suggesting that the customer is a PEP or is linked to one.
6.74 Although under the definition of a PEP an individual ceases to be so regarded after he has left office for 12 months, casino operators are encouraged to apply a risk-based approach in determining whether or when they should cease carrying out appropriately enhanced monitoring of transactions. In cases where the PEP presents a high risk of money laundering or terrorist financing, a longer period might be appropriate, in order to ensure that the higher risks associated with the individual’s previous position have adequately abated (regulation 35(9)(b)).
6.75 Casino operators are required, on a risk-sensitive basis, to:
- have in place appropriate risk management systems and procedures to determine whether a customer (or the beneficial owner of a customer) is a PEP, or a family member or known close associate of a PEP
- have approval from its senior management for establishing or continuing a business relationship with such persons
- take adequate measures to establish the source of wealth and source of funds which are involved in the proposed business relationship or transaction with such persons
- where a business relationship is entered into, conduct enhanced ongoing monitoring of the business relationship with such persons (regulation 33(5)).
6.76 Each casino operator’s policies and procedures should cover when and how customers will be checked for PEP status and how and when senior management approval will be sought and provided, and deal with how the customer will be dealt with if there is any delay to approval being provided by senior management.
6.77 The appropriateness of the risk management systems and procedures adopted must take account of:
- the money laundering and terrorist risk assessment that the casino operator has conducted
- the level of risk of money laundering or terrorist financing inherent in the operator's business
- the extent to which that risk would be increased by a business relationship with a PEP, or a family member or known close associate of a PEP
- any relevant information made available by the Commission (regulation 35(2)).
6.78 Where the casino operator has determined that a customer or potential customer is a PEP, or a family member or known close associate of a PEP, the operator must assess:
- the level of risk associated with that customer
- the extent of the enhanced due diligence measures to be applied in relation to that customer, taking into account any guidance issued by the Commission or any other appropriate body (and approved by HM Treasury), and any relevant information made available by the Commission (regulation 35(3) and (4)).
6.79 There is a hierarchy of risk for individual PEPs, where some PEPs have higher relative risk and others have lower relative risk. The measures taken for particular PEPs should therefore be informed by the relative risk attributed to the PEP, including consideration of the jurisdiction from which they originate. The Financial Conduct Authority (the FCA) has published guidance in relation to the treatment of PEPs and, while casino operators are not subject to the rules made by the FCA (regulation 48(1)), they are advised to consult this guidance when considering the level of risk posed by a particular PEP. The guidance provides advice on who should be treated as a PEP, who should be treated as a family member or known close associate of a PEP, and the level of risk posed by particular PEPs, family members and close associates. Among other things, it recommends that only those individuals in the UK who hold truly prominent positions should be treated as PEPs, and not to apply the definition to local government, more junior members of the senior civil service or anyone other than the most senior military officials. However, this recommendation does not apply when dealing with PEPs from foreign jurisdictions. The FCA guidance also notes that a PEP entrusted with a prominent public function by the UK should be treated as lower risk, unless a regulated firm assesses that risk factors not linked to their position as a PEP mean that they pose a higher risk.
6.80 A casino operator who proposes to have, or to continue, a business relationship with a PEP, or a family member or known close associate of a PEP must, in addition to the enhanced customer due diligence measures described in paragraphs 6.22 to 6.26:
- have approval from its senior management for establishing or continuing the business relationship with that person
- take adequate measures to establish the source of wealth and source of funds which are involved in the proposed business relationship or transactions with that person
- where the business relationship is entered into, conduct enhanced ongoing monitoring of the business relationship with that person (regulation 35(5)).
6.81 Where an individual who was a PEP is no longer entrusted with a prominent public function, casino operators must continue to apply the requirements for PEPs:
- for a period of at least 12 months after the date on which the individual ceased to be entrusted with a public function
- or for a longer period that the casino operator considers appropriate to address the risks of money laundering or terrorist financing in relation to that individual (regulation 35(9) this requirement does not apply to individuals who were no longer entrusted with a prominent public function before 26 June 2017 (Regulation 35(10)).
6.82 When an individual who was a PEP is no longer entrusted with a prominent public function, casino operators are no longer required to apply enhanced customer due diligence measures to the family members or close associates of the PEP. The 12 month period referred to above does not apply in this case (regulation 35(11)).
Next chapter: Simplified customer due diligence