Learn how to identify a foreign politically exposed person (PEP). Then find out how to implement an effective risk-management process for customers you’ve identified as a foreign PEP.
This page refers to the Act sections 5 and 28 and the Rules sections 5-5, 6-23 and 6-24
This example shows how to identify customers who are PEPs and what to do next. It explains the processes you need to assess, manage and mitigate risks associated with customers who are PEPs.
Account manager, Ally, is responsible for onboarding new customers. She receives an enquiry from a new customer seeking to exchange $5,000 into virtual assets.
Ally conducts initial customer due diligence (CDD), and collects their:
- name
- date of birth
- residential address
- country of residence
- occupation.
They provide the required identification documents, including a foreign passport. Ally verifies these using a document verification system (DVS).
Close associate of a foreign PEP
As part of the initial CDD process, Ally asks the customer, if they, a family member, or a close associate is a PEP. The customer states that they have a close business connection with a high-ranking government official overseas and provides their details.
Ally uses third-party software to cross-reference the customer data and does an internet search, including sanctions lists and social media. She also checks for any adverse media to identify potential risks that formal lists might fail to show.
Ally applies the business’s initial CDD policy to assess the money laundering, terrorism financing and proliferation financing (ML/TF) risk of the client. She evaluates the level of risk of the associate of the foreign PEP’s position, geographic location and business activity and identifies 2 high-risk factors, the client is:
- an associate of a foreign PEP
- requesting to exchange physical currency ($5,000) into virtual assets.
Source of funds and source of wealth checks
Both these risk factors require enhanced CDD to establish the customer’s source of funds and source of wealth to confirm where the money for the transaction is coming from and if this is consistent with the client’s profile.
When completing this check, the customer explains that the source of funds is from their salary, with their sources of wealth including their salary and share holdings. This information is verified using pay slips and a summary of shares from the share registry.
Through this process, Ally gets a clear understanding of the customer’s financial position and confirms the legitimate origin of funds for the request to exchange $5,000 into virtual assets.
She documents the explanation and undertakes ongoing CDD on the customer to confirm that future activity is consistent with the explanation provided.
She applies risk mitigation controls and escalates the risk assessment to the senior manager for review and approval before proceeding with the transaction for the high-risk customer.
Record keeping and senior manager approval
Ally maintains detailed records of:
- all CDD steps
- the client’s risk rating
- senior manager approval to continue the relationship with the client.
This guidance sets out how we interpret certain Australian legislation, along with associated Rules and regulations. Australian courts are ultimately responsible for interpreting these laws and determining if any provisions of these laws are contravened.
The examples and scenarios in this guidance are meant to help explain our interpretation of these laws. They’re not exhaustive or meant to cover every possible scenario.
This guidance provides general information and isn't a substitute for legal advice. This guidance avoids legal language wherever possible and it might include generalisations about the application of the law. Some provisions of the law referred to have exceptions or important qualifications. In most cases your particular circumstances must be taken into account when determining how the law applies to you.