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Stop Money Launderers

Money laundering is the process of converting dirty money into clean funds by using various methods. , Dirty money is that which was garnered through illegal means such as high ranking employees in large corporations diverting money to personal accounts, tax evasion, prostitution, or drug trafficking. The most common ways to launder money are through the use of financial institutions (e.g. insurance companies, banks, etc.) or by setting up businesses and companies that serve as a front for receiving the illicit funds. In many cases, these businesses are cash-only, allowing the owners to avoid a paper trail.

The KYC (know your customer) policy introduced in banks is a great way to reduce funneling of dirty money into such institutions; it requires that potential customers and businesses are heavily scrutinized. Bank employees are trained to know about their customers’ finances in depth—e.g. their income, earning potential, employment and investments, etc., For example, if a customer suddenly begins depositing large, unexplained sums of money into their account, it will raise suspicion among the bank. In addition, an effective Know Your Customer program will automatically flag any deposit larger than $10,000 and recommended for further investigation. Meanwhile, keeping detailed records of all transactions make it easier to catch money launderers.

Global PEP List

The Global PEP list includes profiles of Politically Exposed Persons, their family members and close associates.

Politically Exposed Persons (PEPs) are considered high risk in today's regulatory environment. Regulation requires enhanced due diligence when conducting business with Politically Exposed Persons, particularly when they become part of private banking transactions. Heavy fines have been imposed on financial institutions that have conducted business with PEPs without following adequate Know Your Customer procedures and enhanced due diligence processes. Since September 11, 2001, more than 100 countries have tightened their Anti Money Laundering laws, making the fight against corruption a central element of their new legislation. In addition, there has been greater emphasis on cooperation between nations to enforce the Foreign Corrupt Practices Act.

This raises two questions:

  1. What is a Politically Exposed Person?
  2. What are the expectations for an organization that deals with Politically Exposed Persons?

While there is no global definition of a PEP, the Financial Action Task Force (FATF) has issued guidelines. Local legislation, like the USA Patriot Act or the European Union Directive, use similar definitions of a Politically Exposed Person, typically consisting of the following five layers:

  1. Current or former senior official in the executive, legislative, administrative, military, or judicial branch of a foreign government (elected or not)
  2. A senior official of a major foreign political party
  3. A senior executive of a foreign government owned commercial enterprise, being a corporation, business or other entity formed by or for the benefit of any such individual
  4. An immediate family member of such individual; meaning spouse, parents, siblings, children, and spouse's parents or siblings
  5. Any individual publicly known (or actually known by the relevant financial institution) to be a close personal or professional associate.
  6. The interpretation of each of these layers varies from country to country. Some jurisdictions focus only on Foreign Political Figures. Some countries limit the definition to the national level while others some include regional Politically Exposed Persons. While there might be slight variations of the five layers above, the expectations for an organization doing business with Politically Exposed Persons are universally similar.

The following two-step process is an international standard.

  1. Identify the PEPs amongst your clientele
  2. Make sure that funds managed by your organization on behalf of the Politically Exposed Person do not derive from a corrupt source

This two-step process requires that organizations use an innovative approach to identify the PEPs amongst its clients. An ideal global PEP database covers more than 240 countries, faces different languages, and must be maintained continuously; consequently, it contains a lot of data. WorldCompliance has built such a database, including more than 900,000 profiles of Politically Exposed Persons, as well as their family members and close associates; this data is also a real time basis. Our research centers on four continents are dedicated solely to finding information, allowing WorldCompliance to average over 25,000 new profiles and 5,000 updated profiles per month.