Thematic examination for Q1 and Q2 2024 – Politically Exposed Persons (PEPs)
Our first area of focus for the 2024 thematic examination programme will be politically exposed persons (PEPs). Examinations will commence in January and supervised persons that have been selected for this thematic examination can expect to be notified soon. Further information in respect of the thematic examination programme for 2024 will be published early in the new year.
Article 15A(3) of the Money Laundering (Jersey) Order (2008) (the Order) sets out that a PEP is an individual who is or has been entrusted with a prominent public function including, but not limited to:
- Heads of state, heads of government, senior politicians;
- Senior government, judicial or military officials;
- Senior executives of state-owned corporations; or
- Important political party officials.
The definition of a PEP includes immediate family members and close associates of these persons.
By virtue of their role and associated influence, PEPs hold positions that can potentially be abused for the purpose of committing money laundering and related predicate offences, including bribery and corruption, as well as conducting activity related to terrorist financing.
Corruption by PEPs will inevitably involve serious crime, such as theft or fraud, and is of global concern. The proceeds of such corruption are often transferred to other countries and territories and concealed through private companies, trusts or foundations, frequently under the names of relatives or close associates of the perpetrator.
The risk of handling the proceeds of corruption or becoming engaged in an arrangement that is designed to facilitate corruption, is greatly increased where the arrangement involves a PEP. Where the PEP also has connections to countries or business sectors where corruption is widespread, the risk is further increased.
It is however important to acknowledge that the majority of PEPs are neither in a position to, nor do they, abuse their position.
National Risk Assessments
In 2023, the Government of Jersey published its:
- Update on the National Risk Assessment: Money Laundering;
- Legal Persons / Legal Arrangements National Risk Assessment; and
- Update on the Terrorist Financing: National Risk Assessment.
These publications continue to highlight Jersey’s exposure to PEPs and both industry and the Island’s authorities need to remain alive to the associated risks.
A supervised person’s obligations in relation to PEPs
In order to address the risks associated with having business relationships with a PEP, supervised persons are required to implement measures to prevent the misuse of their products and services by PEPs, and to detect such potential abuse if and when it occurs.
The obligations to apply enhanced due diligence measures, including enhanced ongoing monitoring, for business relationships with PEPs are set out in Article 15A of the Order and Section 7.6 of the JFSC’s Handbook for the prevention and detection of money laundering, the countering of terrorist financing, and the countering of proliferation financing which contains the relevant provisions of the Code of Practice.
Declassification of PEPs
With effect from 1 September 2023, the Money Laundering (Amendment No.12) (Jersey) Order 2023 came into force which introduced new provisions into Article 15A of the Order. These provisions enable supervised persons, subject to certain conditions, to declassify PEPs.
The thematic will include consideration of the extent to which Supervised Persons are incorporating these new provisions in their business (risk assessment, policies and procedures, testing, etc.).
Key areas of focus for the examination
The key areas of focus for this thematic examination will include (but not be limited to) the following:
- Business risk – has PEP risk been comprehensively evaluated as part of the supervised person’s business risk assessment (BRA)?
- Policies and procedures – are they adequate and do they enable staff to mitigate risks associated with PEP customers?
- Customer risk assessment / Enhanced customer due diligence – are relevant factors taken into account in the customer risk assessment, and are relevant and proportionate due diligence measures applied?
- Screening – are measures to identify PEPs effective and is the assessment of any risks identified appropriately evaluated?
- Enhanced ongoing monitoring –what monitoring is undertaken in relation to PEP relationships and is it commensurate with risk?
- Compliance monitoring plans - what testing is undertaken to assess the effectiveness of the supervised person’s systems and controls which are designed to mitigate PEP risk?
- Training – are staff provided with adequate training?
Should you have any questions in relation to this thematic examination, please do not hesitate to email your questions to the Supervision Examination Unit – FSCSEU@jerseyfsc.org.
Further Reading
The Money Laundering (Jersey) Order 2008
Article 15A Money Laundering Order 2008