New Joint Statement Outlines BSA Due Diligence Requirements for Politically Exposed Persons

Financial institutions have an obligation to identify and report suspicious activity, including transactions that may involve the proceeds of corruption.

Binder with Compliance label sitting on desk9/1/2020

FinCEN and prudential financial institution regulators (FRB, NCUA, FDIC, and OCC) issued a joint statement on Bank Secrecy Act due diligence requirements for customers who may be considered politically exposed persons (PEP).

The agencies do not interpret the term “politically exposed persons” to include U.S. public officials. BSA/AML regulations do not define PEPs, but the term is commonly used in the financial industry to refer to foreign individuals who are or have been entrusted with a prominent public function, as well as their immediate family members and close associates. By virtue of this public position or relationship, these individuals may present a higher risk that their funds are proceeds of corruption or other illicit activity. The level of risk associated with PEPs, however, varies and not all PEPs are automatically higher risk.

Addressing the money laundering threat posed by public corruption of foreign officials continues to be a national security priority for the United States. In high-profile cases over the years, foreign individuals who may be considered PEPs have used banks as conduits for their illegal activities, including corruption, bribery, money laundering, and related crimes. Banks are reminded of their obligation to identify and report suspicious activity, including transactions that may involve the proceeds of corruption. The Agencies recognize that PEP relationships present varying levels of money laundering risk, and those risks depend on the presence or absence of numerous factors. Banks must adopt appropriate risk-based procedures for conducting CDD; however, under the CDD rule, there is no regulatory requirement or supervisory expectation for banks to have unique, additional due diligence steps for customers whom the banks consider to be PEPs.

Question of the Week

Q. If we refund money to cure a tolerance violation, must we also provide a corrected Closing Disclosure under the TILA/RESPA rule?

A. Yes. If you are curing a tolerance by providing a refund to the borrower, you must also deliver or place in the mail a corrected Closing Disclosure that reflects the refund no later than 60 days after consummation.

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12 CFR 1026.19(f)(2)(v)

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