So, an ex-banker’s wife walks into a British department store…
While this may sound like the setup to a lame joke, this was actually the start of a fascinating case regarding crime, corruption and the struggles of defining a “politically exposed person.” In 2018, Zamira Hajiyeva made headlines for being the target of the U.K.’s first ever “Unexplained Wealth Order” or UWO. Such orders are used to force asset owners - often suspected corrupt foreign officials and their associates - to disclose the source of their wealth. Ms. Hajiyeva’s actions captured the public imagination with her £16 million, decade-long shopping spree at Harrod’s as well as the purchase of a Gulfstream jet and multi-million pound golf club. For instance, she spent £150,000 in a single day on Boucheron luxury products and followed it up with £1,800 of fine wines the very next day.
In an approved judgement by the U.K. Royal Courts of Justice’s Court of Appeals supporting the issuance of the UWO, the court ruled that the subjects in question were in fact “politically exposed persons.” Her husband, Jahangir Hajiyev, served as the chairman of the International Bank of Azerbaijan from 2001 to 2015 before being jailed for a major fraud and embezzlement scheme in 2016. Given his role in the largest bank of Azerbaijan, the Court ruled that Jahangir Hajiyev and, by virtue of their marital relationship, Zamira Hajiyeva could both be defined as politically exposed persons - an important element in the case.
But what does this term “politically exposed person” (PEP) mean and what associated difficulties arise for those navigating the financial crime management space?
PEPs pose a significant risk with respect to money laundering. The chicanery of the Hajiyevas pales in comparison to some of the other infamous cases of public officials abusing their roles for personal gain, such as Augusto Pinochet (Chile), General Sani Abacha (Nigeria) and Teodoro Obiang (Equatorial Guinea). But their case is interesting in that it gets at the heart of the challenge of answering the fundamental question: just who is a PEP?
This question will be answered differently depending on national law, as there is no global definition of PEP. FATF broadly defines a PEP as “an individual who is or has been entrusted with a prominent public function” - generally above a middle-ranking official. Some examples include heads of state, ambassadors and even executives in state-owned enterprises. This definition also extends to “close family members” and “close associates.”. But there is ample room for interpretation here. Ms. Hajiyeva’s lawyers (unsuccessfully) argued that the couple did not meet the statutory requirements for such designation.
Furthermore, depending on the interpretive breadth, this could capture an enormous amount of people worldwide and there is no reliable, robust database of PEPs. There are also distinctions drawn between ‘foreign’ and domestic PEPs and ambiguity exists surrounding time limits for which the designation applies after one leaves their post as a public figure.
Nevertheless, financial and other institutions are required to conduct enhanced due diligence when dealing with PEPs and manage such risks accordingly. Customer identification and EDD are key when onboarding new customers.
However, ongoing monitoring and review of politically exposed clients is a critical element of any compliance program. Open-source intelligence, network analysis and negative news screening are critical elements to make sure nothing falls through the cracks and Sigma is proud to be a leader in these domains.