300+ Million Pages
Hamad Alhelal, CAMS

This week, Greece’s anti-corruption prosecutor, Eleni Touloupaki, confirmed to the OCCRP that her home was burglarized in what she considered was “a message to all the prosecutors and judges who have been fighting against corruption over the last several years.” Touloupaki’s most recent investigation, an alleged kickback scheme between the Swiss pharmaceutical giant Novartis and several Greek officials, was described as the country’s biggest scandal. Yet, while some in the industry may be unfamiliar with the acclaimed anti-corruption crusader, her work contributed to Novartis’ Foreign Corrupt Practices Act (FCPA) settlement last month, which is one of the top 10 largest in history.

For those in compliance, the settlement reinforces the importance of a Politically Exposed Persons (PEP) designation, an area of the customer due diligence process that causes much confusion, which is why many in the industry welcomed this week’s joint statement by U.S. bank regulators clarifying the due diligence requirements for PEPs.

So, what did they say?

According to the statement, “the risk depends on facts and circumstances specific to the customer relationship [and that] not all PEPs are high risk solely by virtue of their status.” For example, PEPs with low transactional activity and bank balances could “reasonably be characterized as having lower customer risk profiles.” Most notably though, the statement suggested that the due diligence requirement only applied to foreign PEPs. Yet, for those institutions, especially ones with a global footprint, the statement is unlikely to eliminate much of the due diligence confusion amidst the plethora of international regulatory guidance, with projections of 300+ million pages of published regulatory documents by the end of this year.  

According to the WSJ, the statement “comes as banking regulators aim to address concerns from the banking industry that compliance with Bank Secrecy Act due-diligence requirements has become<a href="https://sigmaratings.com/where-are-we-now" > overly burdensome and costly.” It follows a similar exercise by the UK government, summarized in a 2017 report titled ‘Cutting Red Tape (CRT) Review of Anti-Money Laundering and Counter Financing of Terrorism regime’, which aimed to address “the UK PEP dilemma” that caused much debate in the UK parliament in the months preceding the Brexit vote. It is a dilemma further complicated by the implications of the referendum as it relates to the EU’s current and upcoming AML Directives (AMLDs).  

Yet, with rising geopolitical tensions and the increasingly complex operating environment, firms need to remain abreast of the evolving myriad of risks they face. As the Cyprus Papers leak revealed this week, “political figures accused of corruption are among dozens of people from more than 70 countries who have bought so-called "golden passports" from Cyprus,” thereby securing EU status, and as a result, a domestic PEP designation for due diligence purposes within the bloc. As the cases of Novartis and CenturionBet have demonstrated, long before any local action was taken, the warning signs existed in the form of adverse media regarding foreign law enforcement investigations. With the ever increasing developments that compliance professionals are expected to stay on top of, the benefits of relevant actionable risk insights cannot be overstated, and with the proliferation of RegTech solutions, there may finally be an effective and risk-based approach to compliance.

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