When determining if you want to enter into a relationship with a non-domestic ‘Politically Exposed Person’ (PEP,) geography will be a key contributing factor along with of course what type of PEP they are, and the type of business relationship they require, etc.
The challenge can be in understanding and defining the relative country risk for PEPs. Many factors should be considered to provide a balanced risk assessment of the country risk.
What is the level of perceived corruption associated with their home country?
How stable is the government, is there ongoing conflict?
Are the Anti-money laundering (AML) standards and practices in place in their country reliable, such that you will have confidence in the source of funds and wealth?
Is there a desired level of transparency in relation to the economy and tax practices enabling you to trust how your services and accounts are used?
Having a standardised approach to defining country risk from a PEP perspective will ensure consistency in the application of due diligence measures for PEPs, as well as help with targeting ongoing monitoring.
The SQA Country Risk Index (CRI) can simplify this process by providing a comprehensive country evaluation specifically focused on PEP risk. For PEP country risk evaluation, SQA Consulting recommends the inclusion of four (of 17) key categories within the County Risk Index:
- AML Maturity
- Tax Transparency
- Transparency, Bribery and Corruption
- Governance and Political Stability
These 4 categories include over 20 different data sets including e.g. FATF compliance ratings for a country, US state Department major money laundering countries, SQA Fines Register, EU List of uncooperative countries, FATCA compliance, Transparency international, UN Convention against corruption.
This country evaluation provides a consistent view of the potential PEP country risk which can be used to support due diligence and ongoing monitoring processes across the organisation. The country ratings can be incorporated into your automated processes as required.
The Country Risk Index can also be used to identify countries where the perceived risk from terrorist financing, money laundering and Sanctions is higher which are relevant for Higher risk customers including your PEPs. These will be covered off in future articles, follow the link to our existing catalogue of AML & PEPs related articles.
For further information about managing country risk, contact us about our Country Risk Index.