Politically Exposed Persons and regulations in India

Politically Exposed Persons is a key concept in tackling the Money Laundering. It is one of the most significant aspects in the extended due diligence. Recommendation 12 laid down by the Financial Action Task Force (FATF) is a key guidance.

FATF guidance explains how the PEP status should be identified. Politicians, their relatives and business aides are important element of the financial system. While establishing a business relationship, Senior executives of the bank should be aware of the relationship.

Dealing with senior officials of foreign government or other senior foreign political figures is challenging for the financial institutions.

Any nexus with government officials or elected representatives can create the appearance of misconduct. By virtue of their position and influence, PEPs present a higher risk for potential involvement in bribery, corruption and other financial crimes. Politically Exposed Persons occupy the prominent public functions. In India, heads of State (loosely termed as Ministers), heads of PSUs or also fall under definition of PEP.

Database of Politically Exposed Persons in India

Riskpro has built India’s first curated database of heightened risk entities. This database consists of the high risk individuals and entities classified in four main categories:

• Politically Exposed Persons (PEP List)
• Regulatory Sanctioned Entities
• Enforcement Sanctioned Entities
• Financial Defaulters

In its research on politically exposed persons, Regtechtimes estimated that trillions of rupees loans were sanctioned by the Indian banks to the companies owned directly or indirectly by the politicians, their relatives or their close business associates.

Similarly, the low ranking politicians are excluded by the FATF guidance, however they pose significant risk. In many instances, the low ranking politicians are found to be associated with the influential politicians involved in money laundering. Hence, in India, it is necessary to gather the intelligence about Member of Legislative Assemblies as well.

Riskpro compiles the PEP Lists for Indian financial institutions. It considers the legal entities associated with the Politicians defined in the FATF guidance as higher risk entities. Additionally, it also compiles the low ranking politically exposed individuals too.

It provides the nexus data needed — delivered through APIs, batch, or online — for insights into corporate entities and individuals. That capability gives banks a transparent view of exactly who they’re doing business with, and it includes information on company hierarchy and complex beneficial ownership connections.

Originally published at https://www.regtechtimes.com on August 14, 2019.