Risks Associated with Money Laundering and Terrorist Financing


Politically Exposed Persons

Objective. Assess the adequacy of the bank’s systems to manage the risks associated with senior foreign political figures, often referred to as "politically exposed persons" (PEP), and management’s ability to implement effective risk-based due diligence, monitoring, and reporting systems. If the relationship is a private banking account 273 For purposes of 31 CFR 1010.620, a "private banking account" is an account (or any combination of accounts) maintained at a bank that satisfies all three of the following criteria:
- Requires a minimum aggregate deposit of funds or other assets of not less than $1 million;
- Is established on behalf of or for the benefit of one or more non-U.S. persons who are direct or beneficial owners of the account; and
- Is assigned to, or is administered by, in whole or in part, an officer, employee, or agent of a bank acting as a liaison between the covered financial institution and the direct or beneficial owner of the account.
refer to core overview section, “Private Banking Due Diligence Program (Non-U.S. Persons),” page 125, for guidance.

1. Review the risk-based policies, procedures, and processes related to PEPs. Evaluate the adequacy of the policies, procedures, and processes given the bank's PEP accounts and the risks they present. Assess whether the risk-based controls are adequate to reasonably protect the bank from being used as a conduit for money laundering, corruption, and terrorist financing.

2. Review the procedures for opening PEP accounts. Identify management’s role in the approval and ongoing risk-based monitoring of PEP accounts.

3. From a review of MIS and internal risk rating factors, determine whether the bank effectively identifies and monitors PEP relationships, particularly those that pose a higher risk for corruption, money laundering, and terrorist financing.

4. Determine whether the bank’s system for monitoring PEPs for suspicious activities, and for reporting of suspicious activities, is adequate given the bank’s size, complexity, location, and types of customer relationships.

5. If appropriate, refer to core examination procedures, " Office of Foreign Assets Control," page 152, for guidance.

Transaction Testing

6. On the basis of the bank’s risk assessment of its PEP relationships, as well as prior examination and audit reports, select a sample of PEP accounts. From the sample selected, perform the following examination procedures:

  • Determine compliance with regulatory requirements and with the bank's established policies, procedures, and processes related to PEPs.
  • Review transaction activity for accounts selected. If necessary, request and review specific transactions.
  • If the analysis of activity and customer due diligence information raises concerns, hold discussions with bank management.

7. On the basis of examination procedures completed, including transaction testing, form a conclusion about the adequacy of policies, procedures, and processes associated with PEPs.


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