The Wolfsberg Group has published updates for its guidelines by which some financial institutions handle the money laundering risks posed by Politically Exposed Persons (PEPs).

This is an update of notes that were issued first in 2003 and of "frequently asked questions" issued in 2008.

The new notes lay out the group's idea of the most effective way of managing PEP risk, which is "to position the PEP control framework as part of the risk-based approach to the identification and management of financial crime risk, specifically as part of a holistic customer risk assessment process."

This guidelines take stock of the European Union's forthcoming fourth Money Laundering Directive, by strongly encouraging the use of a risk-based approach in the management and mitigation of 'PEP risk' wherever it is not a legal requirement. As the number of people who should be treated as “politically exposed” expands, for example through the inclusion of domestic as well as foreign office-holders and their nuclear families and close associates, the Wolfsberg Group notes that such a risk-based approach is becoming ever-more important because financial firms should concentrate their greatest efforts on those PEPs who are most likely to be corrupt.

In other words, the definition of what constitutes a PEP should not, according to the Wolfsberg Group, be diluted by the inclusion of persons who may be in public life, but are not in a position to enrich themselves improperly, as this would lead to an inefficient allocation of resources, poor customer experience and, in extreme cases, to the denial of financial services to those in public life, their relatives or close associates. There is, as the group points out, no single, globally agreed-upon definition of a PEP.

The group states: "Financial institutions should consider a range of factors when determining whether a particular holder of a public function has the requisite seniority, prominence or importance to be categorised as a PEP. Relevant factors could include assessing the nature of the relevant country’s political and legal system and its vulnerability to corruption as per various publicly available, independent indices, the official responsibilities of the individual’s function, the nature of the title (honorary or salaried political function), the level of authority the individual has over governmental activities and over other officials, whether the function affords the individual access to significant government assets and funds or the ability to direct the awards of government tenders or contracts and whether the individual has links to an industry that is particularly prone to corruption."

The members of the Wolfsberg Group, who formed it in the spirit of self-regulation, are private banks such as Banco Santander, Bank of America, Bank of Tokyo-Mitsubishi, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JP Morgan Chase, Societe Generale, Standard Chartered, and UBS. Wolfsberg is a Swiss settlement that houses UBS's training facility. Readers can download the notes here.