Targeted Compliance Assessments – Politically Exposed Persons
22 April 2021
An important component in having an effective New Zealand AML/CFT system is effective supervision. Therefore, the Department continues to look at how we can enhance our risk-based regulatory approach.
We are increasingly using targeted compliance assessments that focus on the effectiveness and implementation of specific AML/CFT obligations in practice. We have recently used this approach to review reporting entities’ policies, procedures and controls for relating to politically exposed persons (PEPs).
Why PEPs?
A PEP is a person, an immediate family member of that person, or someone who has close business ties to that person, who is or has been (in the last 12 months) in a prominent public function in an overseas country. For example, a head of state, senior politician, or an official with a public profile.
Because of the positions they hold, PEPs can mean greater vulnerability to ML/TF for a reporting entity’s business. Therefore, it is important that reporting entities are completing PEP checks to then apply additional measure to mitigate that risk.
Reporting entities must, as soon as practicable after establishing a business relationship (or occasional activity), take reasonable steps to determine if a customer or beneficial owner is a PEP. If they determine their customer or beneficial owner is a PEP, there are additional measures that need to be applied.
What our review involved:
- We contacted 50 reporting entities (34 lawyers and 16 real estate agents) who we believed had an increased likelihood of having PEP customers as they had indicated they had an international presence or touch points in their business. We assessed 49 entities in total.
- We requested the reporting entities’, documentation on policies, procedures and controls relating to PEP checks and a small sample of records that demonstrated that recently onboarded customers and/or beneficial owners had PEP checks conducted on them.
- We assessed each reporting entities’ policies, procedures and controls for its effectiveness, by testing the sample of records provided. Then we provided our findings and recommendations to the reporting entity.
Our findings:
Overall, of the lawyers we assessed, most were partially compliant regarding policies, procedures and controls for conducting PEP checks, and were compliant when we assessed samples of customer records showing whether a PEP check was completed. Of the real estate agents we assessed, most were compliant in regard to policies, procedures and controls for conducting PEP checks and also compliant when we assessed samples of customer records showing whether a PEP check was completed.
Key issues identified:
- No policy in the AML/CFT programme to conduct PEP checks on each customer and beneficial owner.
- No policy in the AML/CFT programme which required Senior Manager approval before continuing a business relationship with a PEP.
- No procedure in the AML/CFT programme which outlined how a PEP check would be conducted (e.g. through the use of a third party, or in-house open source check).
- No policy or procedure in the AML/CFT programme to keep a record of each PEP check conducted.
- No New Zealand definition in the AML/CFT programme of what a PEP is, and what persons are included.
- No control in the AML/CFT programme to ensure that PEP checks had been completed.
We also found that entities who were using a third-party electronic customer due diligence service provider had better compliance rates for PEP checks.
Our recommendation to reporting entities
Make sure you have policies, procedures and controls for conducting PEP checks on every customer and beneficial owner of a customer, that you are following those policies, procedures and controls and keep records which show you have conducted a PEP check.
For more information on PEPs, please read:
- Enhanced Customer Due Diligence Guide (PDF, 223KB)
- AML/CFT Programme Guideline (PDF, 167KB)
If you have any questions, please email us at amlcft@dia.govt.nz or call us on 0800 257 887.
