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| Private bankers and politically
exposed persons |
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Private bankers need to
know as much as possible about the customers that pass through
their doors, and the wealth that they carry. So each customer
who wants to open an account is subjected to considerable processes
of due diligence. If the customer is a businessman who has
made his wealth through his company, that wealth is relatively
easily checked. But if a customer says he is a politician or
a public administrator, the bank raises the level of its due
diligence.
Politicians are of course
not by definition crooked, and many banks – though not
all – will open an account for a person in public office
who can show he is honest. But banks have seen enough politicians
to know that they do not usually earn sufficient money to justify
an account in a private bank. Many Asian bankers rue the day
they admitted to their portals representatives of the late
President Ferdinand Marcos of the Philippines. The Marcos’s
were later found to have stolen billions of dollars from their
country, and the private banks that took their money experienced
great reputational damage as the Philippines sought later to
reclaim the laundered loot.
When a politician comes to see a banker
today the reflex to be suspicious is automatic, and the checks
are especially arduous. Indeed, financial watchdogs have even
devised a term to help bankers pinpoint those in the public
sector who needed to be watched extra carefully. They are called
Politically Exposed Persons or peps. The Wolfsberg Principles,
which were devised by a group of private banks to serve as
an authoritative set of guidelines on money laundering, identify
peps as, ‘individuals holding or having held positions
of public trust, such as government officials, senior executives
of government organisations, politicians, important political
party officials as well as their families and close associates.'
Before a bank accepts or rejects the
pep and his money, he will want to check it out thoroughly.
The process can be complex. The first stage involves creating
a profile of the individual, his contacts, advisers, professional
history and business interests. The majority of peps will co-operate
with this process and provide references to assist the bank.
Banks say that high profile figures largely understand the
process of due diligence even if they may resent it on the
grounds that it breaches their privacy. |
| The task becomes harder for the banker
when the customer’s political involvement is less clear-cut.
Banks has to assess a customer’s influence or access
to public wealth even if he tells them he is no more than a
low level official in a country’s civil service or a
junior politician. ‘The fringe peps are the problem,’ says
Martyn Bridges of Bridges and Partners, a London based consultancy. ‘The
members of the family or discreet advisers pose the biggest
problems for banks. They have a real difficulty doing due diligence
with them.’ |
| At this stage banks can take a number
of routes. First, they can use their own managers in the pep’s
country to make discreet enquiries about the individual and
the provenance of his funds. One private bank said it had a
team of bankers dedicated to the investigation of peps and
other high net worth individuals. The bank’s second route
is to use a database of peps to run the name in question. One
of the largest online databases is IntegraScreen, based in
Hong Kong, which lists biographies of many hundreds of thousands
of Asian and Middle East peps. Much of the material has been
collated by people who have local languages and who work with
public record material, says IntegraScreen’s managing
director Scott Graham. But the process is far from fullproof.
Graham: ‘Names in some languages can be spelt in many
different ways, so even if a ‘match’ is obtained
with the relevant individual, the bank should not assume he
is guilty or suspicious. This should form only the first level
of investigation.’ |
| Technology is now available that can
assist the process of checking peps more thoroughly, says David
Porter, head of risk at the UK consultancy Detica, ‘ Pep
matching focusses on "structured" data, that is well
behaved, orderly data stored in databases. There is also the
parallel world of "unstructured" verbal data, that
is the content of e-mail messages, text messages, instant messaging
and telephone conversations. Technology now exists that can
go through these kinds of data streams, understand the concepts
being discussed and spot suspicious words or phrases. Unstructured
data is the next frontier!’ |
| Peps from countries which have been
black-listed by the Financial Action Task Force rings instant
alarm bells. Many go to private banks in Singapore and Hong
Kong for quite genuine reasons, for example they might fear
a change of regime in their home country resulting in their
money being confiscated, or their assets exappropriated. But
others will be handling black money for which they seek the
imprimatur of a blue chip bank in a well-regulated region.
Tan Sin Liang, a partner with the Singapore law firm SL Tan
and Co, says ‘ Singapore’s strength becomes its
weakness. Singapore is a very stable country politically, but
some of its neighbours are not so clean and their corrupt politicians
may try and abuse it. There is a tension between the government’s
efforts to attract wealth into this country and the risk that
they might attract the wrong kind of wealth. Crooks don’t
distinguish between the two. The banks’ challenge is
to keep out the crooks.’ Tan says the government of Singapore ‘doesn’t
want to be extreme and outlaw Pep money. But on the other hand
it doesn’t want trouble with Peps that misbehave.’ |
Peps who are given a clean bill of
health following the due diligence process dos not automatically
win the bank account he desires, says Urs Brutsch, global head
of clients, ABN AMRO Private Banking. He says that every application
from a pep has to be signed off by ABN AMRO's Global Head of
the International Private Clients business and no more than
one in ten of peps is accepted onto the books. The bank who
gives the pep an account continues to treat him as a high risk
customer, examines his transactions with particular care, and
conducts an annual review of his account. Bankers says that
the pep who conducts unusually banking transactions, such as
moving money between many different accounts or different jurisdictions,
especially if they are in offshore or blacklisted countries,
will not last long as a customer in any reputable private bank.
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