dennis o'connor's pep presentation on peps (30th april 2004)

An Update on PEPS

Denis O'Connor30 April 2007 mlros.com

2

Hillary Benn – Secretary of State for International Development(26 October 2006 – House of Commons)

“Good governance is about ensuring the rule of law….Bad governance can be caused or made worse by the actions of rich countries and their companies. For every bribe

taken – there has to be a bribe giver; for every stolen dollar that is spirited out of a developing country, there has to be a bank account somewhere for it to go into.”

3

Hillary Benn – Secretary of State for International Development(9 December 2006 – International Anti-Corruption Day)

“Tackling corruption wherever we find it – whether here or abroad – is essential to send a strong message to those choose to extort, corrupt and deceive that it will not be tolerated.

Together we can make progress and I welcome the efforts of the anti-corruption movement for raising awareness of the issue. But awareness is one thing; action is another. And it is down to all of us to do

something, not just on one day, but every day.”

4

Serious Fraud Office(14 December 2006 – Press Release)

“The Director of the Serious Fraud office has decided to discontinue the investigation into the affairs of BAE Systems PLC as far as they relate to the Al Yamamah defence contract with the government of Saudi Arabia.

This decision has been taken following representations that have been made both to the Attorney General and the Director of the SFO concerning the need to safeguard national and international security.

It has been necessary to balance the need to maintain the rule of law against the wider public interest.

No weight has been given to commercial interests or to the national economic interest.”

5

JMLSG Guidance – January 2006

„Natural persons who are or have been entrusted with prominent public functions and immediate family members, or persons known to be close associates, of such persons.“ (3MLD)

Non UK

Head of State or Government

Senior politicians, government / judicial / military officials

Senior executives of publicly owned enterprises

Important political party officials

6

JMLSG Guidance – January 2006

Risk based approach

Procedures for identifying PEPs

Appropriate senior management approval – take on & ongoing

Reasonable measures to establish source of wealth & funds

Enhanced ongoing monitoring

7

JMLSG Guidance - January 2006

Retail banking

Credit cards

Wealth management

Financial advisers

Investment fund products

Discretionary & advisory investment management

Correspondent banking

PEPs linked to:-

8

Draft 2007 Money Laundering Regulations

As per JMLSG Guidance

Person who is current PEP or within last 12 months

Resident outside the UK

Prominent public function by

Any state except the UK

The European Community

An international body

Immediate family member or known close associate

Schedule 2 (4): definitions

9

FSA Thematic Review – 2006: Areas for Improvement

Senior management approval – plan for Directive compliance

Training on PEPs – consider specific training for relevant staff

Maintain a list of PEP accounts

Formalise ongoing PEP checks

PEP databases - not all staff & depts aware of limitations

Reputational risk ≠ financial crime risk

Internal Audit review of PEP systems & controls

10

FSA Thematic Review – 2006: Good Practice

Regular committee meetings:- transactions, new clients, SARs

Take on: CEO led committee, standard forms & checklists

MLRO Report: specific mention of PEP systems & controls

No automatic de-classification of PEPs

Remuneration policy

11

Practical Issues

Is your client a relevant office holder?

What are the office holder’s official responsibilities?

What salary accrues to the office holder?

What authority does the office holder have?

What access is there to significant public assets & funds?

Turnover of office holders

Is he/she high, medium or low ranking official?

Common names / naming conventions

Unique identifiers (e.g. date of birth)

12

Practical Issues

Existing clients – do they have any PEP links?

Ongoing checks on PEP status

What level of senior management approval is required?

Identifying beneficial owners

Identifying relatives

Curriculum Vitae

Access to reliable independent information

Limited intelligence on scale of PEP corruption via UK firms

Costs – time / labour / systems (RIA – £20 million)

13

Practical Issues

Establishing country risk

Transparency International’s Corruption Perception Index

World Bank’s Governance Indicators & Reports

UN / EU / US sanctions lists

Ex NCCT?

FATF / IMF country reports

International Narcotics Strategy Control Report (State Dept)

14

Public Sector Initiatives on PEPs & Corruption

SOCA coordinating & supporting law enforcement agencies

HM Treasury developed an early warning system for PEP risk

City & Met Police teams

- Proceeds of Crime Unit (12 officers) – UK focus on foreign PEPs

- Overseas Anti-Corruption Unit (10 officers) - UK persons & foreign bribery

- £35mn of Nigerian assets restrained

15

Denis O’Connor

Deputy MLRO

Commerzbank AG London

Tel: 0207-469-3154

Fax: 0207-653-7416

Email: denis.oconnor@commerzbank.com