Financial Action Task Force introduced several political exposed person red flags that help companies detect unlawful activities. Based on their information matching several of these indicators must raise some suspicions of illegal activity. In some cases, it may even lead directly to money laundering exposal. A particular country or region may also have their own PEP indicators for suspicion that should be considered equally as important.
It is important to remember that the FATF list itself is not exhaustive and these political exposed person indicators are only complementary examples of what is beneficial to pay attention to. Let's look at some of them: 1. Shielding identity
As PEPs clearly aware of their risky status they sometimes try and conceal their identity or avoid being in the spotlight. For example:
2. Shady behavior
- Assign legal ownership to somebody else (a family member or a close associate);
- Constantly or abnormally interacting with the use of intermediaries;
- Using corporate vehicles with no valid business reason or to obscure involved industries and ownership.
Sometimes PEPs behavior gives them away:
3. Position in the company
- Being uncomfortable or secretive about the source of wealth and funds;
- Providing inaccurate, incomplete or simply false information;
- PEPs information doesn't correspond with other publicly available data;
- Reluctance to explain the reason behind their business in the country of the financial institution or DNFBP;
- PEP has been denied an entry visa;
- The funds that belong to PEP repeatedly move from one country to another;
- A substantial flow of cash or wire transfers into or out of the account of PEP;
- No details or credible explanations for certain business relationships, account openings, or transactions;
- In PEP's country, it is forbidden to hold accounts or property in other countries.
PEP's position can also be a reason for concern:
4. The industry
- Authority, access, and control over funds, policies, and operations of the company;
- Formal/informal ability to control mechanisms against ML/TF;
- Control/influence over government or corporate accounts;
- Owns or has control over financial institutions or DNFBPs.
Industries that are considered high-risk depend on the place and varies from country to country. Examples of higher risk industries are:
- Banking and finance;
- Military and defense;
- Businesses that work with government or state agencies;
- Mining and extraction;
- Public goods provision.
The way PEP uses or receives money can expose a lot about them:
- PEPs account shows substantial activity in a short span of time after a long dormant period;
- Private banking;
- Wire transfers with no economical explanation or that lack beneficiary information;
- Anonymous transactions or payments received from an unknown third party;
- Funds are constantly moved from one account to another or between financial institutions without a business rationale;
- Substantial flows of cash, large international funds transfers or wire transfers in and out of the account;
6. Products and service
- Having and using multiple bank accounts for no clear reason
FATF also deems some of the services and products more risk-prone and particularly vulnerable to be used by PEPs:
7. Local indicators
- Businesses catering to foreign clients;
- Trusts and service providers;
- Correspondent/concentration accounts;
- Real estate;
- Dealers in high-value transport vehicles such as sports cars, ships, helicopters, and planes.
- Dealers in precious metals, stones, and luxury goods.
The FATF also explain how some countries are considered higher risk based on geographic risk factors. These indicators should also be taken into account when scanning a PEP if they are from:
Sumsub KYC/AML solution is a priceless tool that helps to protect the platform by constantly and automatically monitoring PEPs across all databases.
- Foreign or domestic higher risk country;
- A country with a high risk of corruption;
- Countries with mono-economies;
- A country that has not signed a relevant anti-corruption convention such as the UNCAC and the OECD Anti-Bribery Convention