FINTRAC’s new guideline sets the expectations for identifying who is a foreign or domestic Politically Exposed Person (PEP) or a head of an international organization (HIO) and who fits that definition. Here’s the relevant part of the general obligation:
Part of knowing your clients is determining whether a person is a foreign PEP, a domestic PEP, a HIO, or a family member or close associate of one of these people.
The reporting entities with these obligations include financial entities, securities dealers, money services businesses and life insurance companies. This guidance is for financial entities who have to make a PEP or HIO determination in relation to account openings, the periodic review of existing accounts, the detection of a fact in relation to existing account holders, and incoming and outgoing electronic funds transfers (EFT) of $100,000 or more.
For all of these activities, you must take reasonable measures to determine whether a person is a foreign PEP, or a family member or close associate of a foreign PEP. Foreign PEPs, their family members and their close associates must automatically be treated as high-risk clients.
You must take reasonable measures to determine whether a person is a domestic PEP or HIO, or is a family member of a domestic PEP or HIO, at account opening, during the periodic review of existing account holders and for incoming and outgoing EFTs of $100,000 or more. You must also determine if there is a close association to a domestic PEP or HIO for incoming and outgoing EFTs of $100,000 or more, or if you detect a fact about an existing account holder.
Once you have determined that a person is a domestic PEP, a HIO, or the family member or close associate of a domestic PEP or HIO, you must assess to determine if that person poses a high risk for committing a money laundering or a terrorist activity financing offence. If you assess the risk to be high, then the person must be treated as a high-risk client.
All high-risk clients are subject to your policies and procedures for high-risk clients, outlined as a requirement of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). For high-risk PEPs, HIOs, their family members and close associates, you have specific obligations to keep records, establish source of funds, and obtain senior management review of a transaction, or approval to keep the account open.
If you have already determined that a person is a foreign PEP or the family member of a foreign PEP, in accordance with the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR), you are not required to make this determination again. Furthermore, you are not required to assess all of your existing account holders immediately upon the coming into force date (June 17, 2017) of the PEP and HIO obligations. Rather, FINTRAC expects you to have, within your policies and procedures, a process by which existing account holders will be assessed over time. This process should be in line with your obligation to take reasonable measures on a periodic basis to determine whether an account holder is a foreign PEP, a domestic PEP, a HIO, the family member of one of these people, or a close associate to a foreign PEP.
The rest of the guidance defines who meets these definitions, what “reasonable measures” are, etc.
Most notably – once a foreign PEP, always a foreign PEP, but a domestic PEP expires 5 years out of office.
It is nice to see that, unlike other countries, just being a PEP does not automatically make you high risk….
FINTRAC Guidelines page
New PEP/head of interrnational organizations guideline – banks, securities dealers, MSBs, life insurance