Private banks on high alert for “politically exposed person” transactions
The transition in Sri Lanka’s political setting has triggered a high alert in banks and financial institutions cautious about transaction spikes among Politically Exposed Persons (PEP) accounts, officials in the banking sector said.
PEPs are described as high-risk customers with more opportunities than ordinary citizens to acquire assets through illegal methods such as taking bribes and money laundering. “Therefore, PEPs must be identified and screened in financial institutions because of their risks. With the change in the political landscape, we are on high alert for transactions in this kind of account, especially with those politicians with a doubtful reputation,” a senior banker in a foreign bank told The Sunday Times Business.
Last year in October, the Financial Intelligence Unit (FIU) initiated the PEP to identify themselves when transacting with financial institutions (FI) or Designated Non-Finance Businesses and Professions (DNFBPs). “This is a requirement under the Financial Transactions Reporting Act, No. 06 of 2006, Financial Institutions (Customer Due Diligence) Rules, No. 01 of 2016 and Designated Non-Finance Business (Customer Due Diligence) Rules. The collection of such information from customers is a globally accepted practice. Hence, the support and cooperation of customers of all FIs and DNFBPs are solicited,” the FIU added.
Large withdrawals from PEP accounts can trigger automated monitoring systems, prompting banks to conduct enhanced due diligence and trigger Reviews, which typically involve a comprehensive assessment of the PEP profile, including their source of funds, transaction history, and any other recent changes in their circumstances such as political events or personal situations that might affect their financial activities.
As banks adapt to sharp scrutiny and shifting regulatory expectations, they may find themselves re-examining their relationships with PEPs to mitigate the operational, reputational, and legal risks involved, banking industry analysts pointed out. This could lead to a more guarded approach to onboarding new PEPs or even divesting from existing relationships, specifically if there is a perceived increase in risk or scrutiny associated with the individuals involved.
Anti-money laundering (AML) experts in the banking sector pointed out that most PEPs are banking with state sector banks.
They also noted that despite all the stopgaps and regulations, the banks have, people of that magnitude will always carry copious amounts of cash, which more often than not is unaccounted cash. “It is highly doubtful that they will do any illegal activities through cash transfers. It should be a mandatory requirement to flag such transactions which aren’t unaccounted for by the regulator,” a senior banker noted. He also noted that Sri Lanka still does not have a mechanism to measure the quantum of physical cash in the system, which is a red flag.
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