In a move to bolster their efforts against money laundering and illicit financial activities, financial institutions in the Philippines have reaffirmed their commitment to stringent customer due diligence (CDD) measures, with a particular focus on Politically Exposed Persons (PEPs). The latest guidelines issued by the authorities underscore the need for a proactive and risk-based approach to identifying and monitoring individuals with significant political influence.
Under the updated 2018 Implementing Rules and Regulations (IRRs) of Republic Act No. 9160, commonly known as the Anti-Money Laundering Act of 2001 (AMLA), financial institutions are required to adhere to Rule 19, Section 1. This directive mandates that all covered persons, including banks and non-bank financial institutions, implement robust CDD measures and other related obligations when dealing with PEPs.
The guidance document defines a PEP as an individual who holds or has held a prominent public position either in the Philippines, a foreign state, or an international organization. This position grants them substantial authority over policy, operations, or the use and allocation of government-owned resources.
In addition to identifying PEPs, covered persons are also obligated to record the true and full identities of these individuals, as well as their immediate family members and close associates. The risk-based procedures for different categories of PEPs must be applied, taking into consideration several criteria. These criteria include the nature of the service or product the PEP seeks, the purpose of their account or transaction, the source of funds and wealth, the nature of their business or employment, the existence of suspicious transaction indicators, and any other relevant factors that could influence the assessment of risk.
Differentiating Domestic and International Organization PEPs
Domestic and international organization PEPs, contrary to foreign PEPs, are not automatically categorized as high risk. The level of risk depends on the results of the financial institution's risk profiling of the PEP customers, following their adopted methodology. For higher-risk business relationships with domestic and international organization PEPs, the financial institution must obtain senior management approval before establishing or continuing such relationships. They are also required to take reasonable measures to establish the source of wealth and funds and conduct enhanced ongoing monitoring of these relationships.
Foreign PEPs, on the other hand, demand a higher level of scrutiny. Enhanced due diligence (EDD) measures, equivalent to those for higher-risk customers, are necessary when dealing with foreign PEPs. Decisions regarding engaging or maintaining business relationships with foreign PEP customers should not be made at an ordinary level but must involve senior management. This more comprehensive approach is crucial to intensify monitoring and detect any unusual or suspicious transactions.
Customer-Centric Onboarding Procedures
The document emphasizes the importance of implementing customer-centric onboarding procedures for PEPs, recognizing that not all domestic PEPs pose a higher risk. For customers assessed as having a higher-risk relationship, financial institutions are expected to adopt a reasonable turnaround time for conducting onboarding EDD procedures and approval processes. This approach ensures that customers are informed of the requirements and approval processes within a defined timeframe.
Continuing Assessment and Updating of PEP Status
One of the most significant aspects of CDD for PEPs is the ongoing identification and assessment of a customer's PEP status. Instead of adopting a one-size-fits-all approach where "Once a PEP, always a PEP" is assumed, financial institutions are encouraged to apply a risk-based assessment. This entails evaluating whether there are any residual risks or significant influences posed by the customer or past PEP. Factors such as the position held, susceptibility to corruption or misappropriation of state funds, length of time in office, transparency about the source of wealth, and political connections post-office must be considered.
To facilitate the identification of PEPs, financial institutions are encouraged to adopt a database dedicated to PEPs that should be regularly updated. The structure and content of this database should be tailored to the institution's unique risk and context.
In an effort to maintain transparency and fairness, financial institutions are advised to adopt clear and reasonable communication strategies when dealing with their customers. These strategies should include providing customers with clear information about the account opening process and procedures while avoiding discriminatory practices. Customers should be made aware of the applicable requirements and approval processes within a reasonable timeframe.
In conclusion, the recent guidelines issued by Philippine financial authorities reflect the government's commitment to combating money laundering and financial crimes. By enhancing CDD measures for PEPs, financial institutions are taking proactive steps to protect the integrity of the financial system and ensure that high-risk individuals are subjected to the necessary scrutiny. These measures not only align with international anti-money laundering standards but also demonstrate the Philippines' dedication to maintaining financial integrity and stability.