Politicians, Others Are High Risks
The Central Bank of Nigeria (CBN)’s reviewed guidelines mandating banks to monitor and restrict transactions by Politically Exposed Persons (PEPs) will affect many Senators and House of Representatives members, especially those on first term.
The reviewed guidelines, released at the weekend, asked the banks to undertake a risk assessment of new political office holders to determine the level of risk posed by that customer and the proportionate levels of due diligence and monitoring required.
With this new policy, many of the 109 members of the Senate and a 360-member House of Representatives will have their accounts reclassified.
The circular, signed by CBN Director, Financial Policy and Regulations, Chibuzo Efobi, provided guidance to the banks on what to look out for.
He said: “When considering whether to establish or continue a business relationship with a PEP, the focus should be on the level of money laundering, financing of terrorism and proliferation financing (ML/FT/PF) risk posed by the PEP, and whether the FI has adequate controls in place to mitigate such risks. This is in order to prevent the FI from being used for illicit purposes should the PEP be involved in criminal activities.”
The apex bank explained that in view of the corruption levels in Nigeria, domestic Politically Exposed Persons (PEPs) are rated highly vulnerable to financial risks, therefore, by default, most domestic PEPs are considered high risk.
It said foreign PEPs and PEPs with prominent functions in international organisations should be categorised based on the level of risk as assessed by financial institutions.
The banks are required to conduct customer due diligence (CDD) for the purpose of establishing that a customer is a PEP, as provided by the CBN regulations.
The banks are also expected to identify and verify the identities of PEPs before providing them with financial services, or as soon as possible afterwards. Identification should also cover legal persons and legal arrangements that have at least one beneficial owner who is a PEP.
Continuing, it said once it has been established that a new or existing customer is a PEP, the bank should undertake a risk assessment.
“Higher risk PEPs require enhanced ongoing monitoring of the business relationship. The financial institution should implement electronic and/or manual monitoring systems to constantly monitor the business relationship and detect unusual and potential suspicious transactions and activities,” it said.
The CBN said that financial institutions, in the ordinary course of their businesses, establish business relationships with PEPs whom may be vulnerable to corruption thus may portend reputational and financial crime risks to the banks.
According to the apex bank, PEPs pose a high risk of ML/FT/PF due to the possibility that individuals holding such positions may misuse their power and influence for personal gain or advantage to themselves, close family members and/or associates.
“Such individuals may also use their families or close associates to conceal illicit funds and assets. In addition, they may also seek to use their power and influence to gain representation and/or access to, or control of, legal entities for similar purposes,” it said.
The CBN has therefore mandated banks to comply with the provisions of the CBN Anti-Money Laundering, Combating Financing of Terrorism and Countering Financing of Proliferation of Weapons of Mass Destruction (AML/CFT/CPF) Regulations, 2022 to mitigate the potential risks posed by PEPs.
Amongst these obligations is the requirement to apply a risk-based approach to identifying Politically Exposed Persons (PEPs) and to apply appropriate Enhanced Due Diligence (EDD) measures when dealing with those that pose higher AML/CFT/CPF risks.
The objective of this Guidance is to assist FIs in the identification and management of risks associated with PEPs in the course of business relationships.
According to the apex bank, “when the risk assessment established that the business relationship with a domestic/international organization PEP does not present a higher risk, the PEP in question can be treated like any other normal customer.”
The apex bank said even after a relationship has been established with a customer, constant vigilance must be the watchword to ensure that new information established are used to re-evaluate the status of such a customer and to determine if the customer should now be treated as a politically exposed person.
According to the CBN guidelines, “PEP accounts should be subject to periodic reviews as may be determined by the bank in line with risk assessment.”