Domestic politically exposed persons: enhanced due diligence still required (MLR 2017 reg 35)
Sandeep Gill, a serving member of the House of Commons, asks Wexley Thorne LLP, an SRA-authorised firm in England, to act on his purchase of a house in London for £1.2 million. The firm's risk-management systems identify him as a politically exposed person. Having assessed the risk, the firm finds no enhanced risk factors beyond his status as a domestic PEP and decides it is willing to act.
Under the Money Laundering Regulations 2017, what must the firm do in addition to its standard customer due diligence before establishing the business relationship?
Choose one answer to see the reasoning.
Worked answer
Correct answer A: Obtain senior management approval, take adequate measures to establish the source of wealth and source of funds, and conduct enhanced ongoing monitoring.
THE RULE TO REMEMBER
Before a business relationship with a PEP (including a domestic PEP), a firm must obtain senior management approval, establish source of wealth and funds, and monitor the relationship more closely (MLR 2017 reg 35(5)).
Domestic politically exposed persons: enhanced due diligence still required (MLR 2017 reg 35)
Regulation 35 of the Money Laundering Regulations 2017 requires a relevant person to have systems to identify PEPs and to manage the enhanced risks. Regulation 35(3A) provides that for a domestic PEP the starting point is that the client presents a lower level of risk than a non-domestic PEP, and if no enhanced risk factors are present the extent of enhanced due diligence is less. But it is still enhanced due diligence. Regulation 35(5) requires a relevant person who proposes to have a business relationship with a PEP, in addition to the measures in regulation 33, to obtain senior management approval, take adequate measures to establish the source of wealth and source of funds, and conduct enhanced ongoing monitoring. Mr Gill is a domestic PEP, so Wexley Thorne must take these steps, scaled to the lower risk.
Why B is wrong: Regulation 35(3A) lowers the extent of enhanced due diligence for domestic PEPs but does not remove it; reg 35(5) still applies.
Why C is wrong: PEP status calls for enhanced, not simplified, due diligence.
Why D is wrong: Being a PEP is not in itself grounds for knowledge or suspicion of money laundering, so no report is required merely because of his status.
Why E is wrong: The Regulations permit relationships with PEPs subject to enhanced measures; they do not prohibit acting.
A little more practice done.
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