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POLITICALLY EXPOSED PERSONS AND THE LEGAL RESTRICTIONS THEY FACE

March 2018 - Crime. Legal Developments by Rahman Ravelli Solicitors.

More articles by this firm.

Aziz Rahman and Ben Ticehurst consider the Novartis scandaland the business restrictions on those holding high office.

The uproar in Greece surrounding the alleged corruption involving a pharmaceutical company and a number of senior politicians has put bribery and corruption firmly in the headlines.

But it also emphasises the issues surrounding politically exposed persons (PEP’s): the unique legal situation they can find themselves in, the laws relating to them and the precautions that they (and those who do business with them) need to take.

At present, two former Greek prime ministers and an EU commissioner are among ten officials being investigated over allegations that Swiss medical giant Novartis bribed officials and doctors, from 2006 to 2015, to fix drug prices and boost its sales to public hospitals. Greek prosecutors published a report alleging that Novartis officials paid tens of millions of euros in bribes.

It is one in a series of corruption investigations around the world where PEP’s have come under scrutiny.

PEP’s

Regulation 35(12)(b) of the 2007 Money Laundering Regulations defined a ‘politically exposed person’ as an individual who is entrusted with a prominent public function. This means heads of state, leaders of governments, ministers, members of parliament, senior figures in political parties, members of supreme courts or other high-level judicial bodies, those in senior positions at central banks, ambassadors, high-ranking officers in the armed forces and senior figures in state-owned enterprises or international organisations.

Regulation 35(9)(a) and (b) states that a PEP should continue to be treated as one for at least 12 months after they leave their public function – or longer if there appears to be a risk of money laundering or terrorist financing relating to that person.

Such a decision is based on a risk assessment of that individual. They may be considered a lower risk if they only function in a country that is associated with low corruption levels, political stability, free and fair elections, strong state institutions, transparency of ownership and an independent judiciary. If some, or all, of these factors are not present, that person is likely to be considered a higher risk.

Due Diligence

Owing to their positions, PEP’s are treated differently by companies and institutions. The 2007 Regulations require that enhanced customer due diligence measures are taken to manage and mitigate the risks posed by PEP’s, their families and known close associates.

Such an approach should include:

* Having approval from senior management for establishing or continuing business relationships with a PEP.

* Taking adequate measures to establish the source of wealth that a PEP is using in business relationships.

* Ongoing monitoring of those business relationships.

The more high risk that a PEP is believed to be, then the more exhaustive the checks on their wealth and business transactions need to be. The seniority of management giving the approval to commence or continue business relationships with a PEP should also reflect the possible risk: the higher the risk, the more senior the person required to make the decision.

In short, PEP’s are recognised as a potential problem – and those who have dealings with them are obliged to act in a way that recognises this.

4MLD

There is now greater emphasis on preventing PEP’s being able to act in a corrupt manner – as shown by the European Union’s Fourth Anti-Money Laundering Directive (4MLD).

The Directive, which came into force in June 2017, introduced substantial revisions to the anti-money laundering procedures that are in place across the European Union; including changes to customer due diligence, a central register for beneficial owners and a focus on risk assessments.

Significantly, the Directive means that the rules that had existed for PEP’s are no longer limited to persons outside the UK. PEP’s in the UK will now be subject to the same scrutiny as foreign PEP’s.

Unexplained Wealth Orders

Under the UK’s Criminal Finances Act 2017, unexplained wealth orders (UWO’s) became part of British law in January this year. What must be remembered is that UWO’s can be challenged. We have written articles on how this should be done.

They require a person who is suspected of involvement in - or of being connected to a person involved in - serious crime to explain how they obtained their assets, if there are reasonable grounds to suspect that their income would be insufficient for them to obtain those assets.

UWO’s are another measure that brings closer scrutiny of PEP’s. A UWO can be applied to politicians or officials from outside the European Economic Area (EEA), or those closely associated with them. A UWO made in relation to a non-EEA PEP would not even require suspicion of serious criminality. If, as a result of the UWO, the person produces evidence relating to their assets, a decision will be made by the authorities on how to proceed using that material.

Evidence produced in response to a UWO cannot normally be used against the person who provided it in any subsequent criminal prosecution. But a failure to provide evidence in response to a UWO could lead to the assets being recovered as part of a civil recovery action.

Of course, not everyone who would be classed as a PEP will be the subject of a UWO. It remains to be seen how many will be. But the introduction of the UWO, like 4MLD and the 2007 Regulations before it, is part of a wider recognition by the authorities that those who hold significant public positions in any country need to be scrutinised as they may pose a corruption risk.

Those in political positions, therefore, must take careful and organised steps to ensure they can account for the sources of any wealth they are known to possess. Whether they like it or not, their past or current position can be viewed as a vulnerability to corruption; which means they are liable for greater scrutiny than the more “normal’’ members of the population.

It also means that any individual, corporate or organisation that has dealings with a PEP (or is even only considering having such dealings) has to take all the necessary precautions and make all the checks required by law. Failure to do so could prove extremely damaging.