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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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