PEP Relatives – National Risk Assessment 2024 reports on PEPs and RCAs involvement in the money laundering activities ” have shown the growing concern about money laundering associated with PEPs and their RCAs.
“Did you know that the National Risk assessment 2024 reports have revelated that the relatives of Politically Exposed Persons (PEPs) are now at the heart of sophisticated money laundering schemes?”
is this a surprise for financial institutions?
it could be because in most cases, the financial institutions often strictly implement the AML compliance program on just the Politically exposed persons and let the RCAs go as less risk profile.
But the reality is different because it’s the PEP’s relatives and close friends who pose the greatest hidden risk of money laundering.
These innocent people who have a connection with PEPs can be used for sophisticated money laundering activities, which can ultimately put your organization at risk of regulatory fines.
therefore, there are many things that compliance officers need to know about the RCAs when it comes to the Risks associated with the closely associated PEPs.
That is why we have come up with some dangers that RCA could pose with some examples and strategies for the compliance officers to avoid using your organization for money laundering. But before discussing them know who are PEPs and their close associates.
Why PEPs and Their Relatives are so Important?
In simplest terms, any person who is or was part of a government organization and has some influential power is publicly known as a politically exposed person.
If could define list down, any person who is a head of state, senior politicians, military officials, and high-ranking members of the supreme courts in any country.
Any person who is associated with them, either their family members, siblings, or business partners are considered as the RCAs. But the debate over the RCA’s involvement there. Let’s understand Who Qualifies as a Relative.
Why Relatives and Close Associated Matter for AML Compliance?
The connection between the PEPs and their close members is not just about family matters, but it goes beyond that and is often involved in corruption, bribery, and money laundering activities.
The regulatory bodies have investigated that the RCA’s close ties to powerful individuals make them the most powerful to commit financial crimes with less scrutiny than the PEPs themselves. This makes them a significant risk factor in AML compliance.
The Hidden Risks Posed by PEP Relatives to Financial Institutions
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Indirect Influence and Power
In countries that are famous for weakening legal frameworks, politicians become more powerful and often commit financial crimes such as corruption, bribery, and money laundering.
And seeing this their close friends also take advantage of such indirect influence and power.
And what can do with such power is They may use this power to secure favorable deals, manipulate financial systems, or engage in corrupt practices because they know they will have to go through a very weak compliance program. This indirect influence is often harder to detect and ultimately makes it a potent tool for money laundering and other financial crimes.
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Financial Secrecy and Complex Networks
So what RCAs try to do is to find a complex financial network that makes it easy for them to obscure the origin of their illegally obtained fund.
Some examples of established such networks involve offshore accounts, establishing shell companies, and making transactions to jurisdictions that less comply with the AML regulations.
By leveraging these structures, PEP relatives can effectively launder money while maintaining its legitimacy.
Challenges in Identifying and Monitoring PEP Relatives
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Data and Information Gaps
One of the biggest challenges in monitoring PEP relatives is the lack of a reliable data compliance team needed to make sure the RCAs are not doing financial crimes.
One of the major reasons is that Public records that often companies collect may not always provide comprehensive information. therefore the privacy laws can further complicate the collection of necessary details.
That’s why This data gap makes it difficult for compliance officers to identify all potential risks.
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Evasion Tactics
As the Close associates are inspired by their PEP’s relatives, so they already know the different techniques of doing the crimes.
For instance, They may use aliases such as the PEP’s friends, and colleagues that can help them in committing the crime, create fictitious identities, or employ complex legal structures to hide their involvement in financial transactions.
These are some strategies that can make it challenging for financial institutions particularly the compliance teams to track their activities and assess their risk levels accurately.
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Compliance Hurdles
Screening the PEPs is also a major obstacle because of their level and hidden involvement in bribery and embezzlement crimes.
That is the reason, The complexity of financial networks, coupled with legal and regulatory limitations, can make it difficult to conduct thorough due diligence.
the increasing volume of potential PEP relatives that need to be monitored adds another layer of complexity to the compliance process.
What should the Compliance team do?
All the compliance team needs to do is impement the comprehensive risk assessment and PEP and RCA screening process in the AML efforts. Companies need to make sure to check every detail and background history of RCAs before onboarding them. The best practice is to implement the AML advanced Monitoring and screening PEPs and RCA solutions.
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