Understand PEPs and their Networks
Discover how to unearth and connect customer relationships to better fight corruption and money laundering.
Start HereOn August 16th, former U.S. Rep. Terrence John Cox was federally indicted on 28 charges, including wire fraud, campaign contribution fraud, and money laundering. The unsealed indictment describes schemes carried out between 2013 and 2019. Cox purportedly diverted payments, investments, and loans to secret accounts, stealing them for personal gain. The former Representative is also charged with illegally soliciting and reimbursing campaign funds from friends and close associates.
According to the Department of Justice, Cox relied on his network of business interests and Relatives or Close Associates (RCAs) for much of his fraud. This was accomplished by:
Straw donation schemes are a common way RCA relationships can be exploited. There have been multiple indictments and convictions involving this scheme in recent years:
Stories like these involving fraud, extortion, and bribery illustrate why a holistic approach to screening and monitoring PEPs involves not just looking at individuals but at their complex networks.
When evaluating accountholders, firms should consider Relatives and Close Associates (RCAs) in their definition of a Politically Exposed Person (PEP). While global definitions of PEPs vary, the FATF guidance definition is a reliable starting point.
For example, Cox allegedly opened a personal account in the name of an entity he managed instead of in his own name. Appropriate due diligence would help to reveal Cox, a PEP, and his close associates as beneficial owners of the entity. The account would thus be high-risk and require Enhanced Due Diligence (EDD). Similarly, Cox’s friends and family members would qualify as RCAs, and are thus high-risk as well. Activity involving donations to him, especially large amounts, would need to be monitored more closely. For example, does he or an associate seem to be “refunding” this activity?
The risks PEPs face involve complex networks of relationships, not just individual activity. A politician like Cox might be the most obvious candidate for PEP status. But relationships with friends, business partners, or in some cases business entities are what make PEPs so vulnerable. They can be exploited and involved in corruption (wittingly or not.) Firms should analyze these relational networks within their organization’s risk appetite and policies.
Discover how to unearth and connect customer relationships to better fight corruption and money laundering.
Start HereOriginally published 26 August 2022, updated 26 August 2022
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