U.S. Bank Regulators Clarify CDD Requirements for PEPS

Banks need to assess money-laundering risks and conduct enhanced due diligence when dealing with foreign public officials and their families or associates, five regulatory agencies said.

PEP’s pose higher risks as their funds may be the proceeds of corruption or other illicit activities, the banking regulators said in a joint statement. The agencies added, that risks associated with politically exposed individuals vary and not all of them are automatically higher risk.

“The risk depends on facts and circumstances specific to the customer relationship,” said the statement issued Friday by the Federal Reserve Board, the Federal Deposit Insurance Corp., the U.S. Treasury Department’s Financial Crimes Enforcement Network, the National Credit Union Administration and the Office of the Comptroller of the Currency.

For instance, a politically exposed individual who has a limited transaction volume and a low-dollar deposit account with a bank, and whose source of funds is known and legitimate, could be characterized as a lower risk, according to the statement.

The agencies also clarified that there are no regulatory requirements or expectations for financial institutions to have unique, additional due-diligence steps for clients who are considered politically exposed. But they said banks are required to “identify and report suspicious activity, including transactions that may involve the proceeds of corruption.”

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