Commerzbank has been fined £37 million by the UK’s Financial Conduct Authority (FCA) for due diligence failures including inadequate consideration of the risks of Politically Exposed Persons (PEPs). Get a step-by-step guide to addressing PEP risk among supply chains, customers and other third parties.
Major fine for due diligence failures
In June, the FCA fined the London branch of German bank Commerzbank £37 million for not having adequate Anti-Money Laundering controls in place. It had overdue due diligence checks on more than 1,700 clients and failed to add 1,110 high-risk clients and 40 high-risk countries to its automated due diligence tool. It also failed to adequately consider the risks of PEPs.
This fine is a stark reminder of the financial, legal, reputational, and strategic risks for firms posed by PEPs. PEPs’ prominent role and public function can make them a target for bad actors seeking undue influence. Companies must reduce this risk by identifying PEPs among customers, suppliers and other third parties on which they rely. Once identified, companies must carry out due diligence on them and continue this monitoring for the duration of their relationship.
But even if there is no evidence of money laundering or bribery by PEPs, as in this case, Commerzbank’s heavy fine shows that companies can still be punished for failing to gain an overview of PEPs in the supply chain. As Matthew Banham and Noel Power of the law firm Dechert put it: “As evidenced by the size of the fine, the FCA views the risks of exposure to financial crime as seriously as the crime itself.”
A step-by-step guide to understanding PEP risk
How can organisations mitigate business risks, protect their reputation, address regulatory compliance, and reduce the likelihood of financial penalties? It starts with a risk-aligned process for conducting due diligence and ongoing monitoring across third-party networks, particularly when dealing with individuals that qualify as politically exposed, including:
- Heads of state, government ministers or other high-ranking foreign officials
- Members of judicial bodies
- Ambassadors or high-ranking military officers
In addition, individuals who may have left political positions but still wield considerable influence can fall under some definitions of PEPs - and definitions do vary from one country to another. Keeping up with changing circumstances is especially critical because PEPs expose organisations to an expanding array of anti-money laundering and anti-bribery and corruption laws around the world.
Want to see how it’s done? Take a closer look at how Nexis® Solutions enables efficient, cost-effective risk management through our flexible technology and unrivaled content universe.