FATF red-flags corruption – guidance for firms

Not all politically exposed persons (PEPs) are corrupt, the Financial Action Task Force (FATF) stresses at the outset of its June 2012 report on ‘Specific Risk Factors in Laundering the Proceeds of Corruption’, which focuses on abuse of public office for private gain. [1] Nevertheless, Recommendation 12 requires enhanced ongoing monitoring of business relationships with foreign PEPs (and higher risk business relationships with domestic PEPs): how enhanced will depend on “numerous factors”, it says, like country of origin, industry/sector and products and services used, also the individual’s position, why they want the account and whether transactions through it accord with the explanation given. The report, which aims to be practical - it includes real-life case studies - explores both the characteristics of corrupt money and signposts useful sources to assist its detection.

Timon Molloy, Editor (timon.molloy@informa.com)

Banking offshore

Grand corruption normally only comes to light after regime change and foreign financial intelligence units (FIUs) may well be reluctant, the report notes, to share their findings or suspicions with a jurisdiction beforehand: which does not excuse reporting institutions their duty to obstruct the flow of embezzled state funds. FATF cites the UK FSA’s report on banks’ controls around high ML risk situations [2], which revealed that a third of the sample were “willing to accept very high levels of money laundering risk if the immediate reputational risk was low”.