PCC 51 – Guidance on measures relating to FPPOs and DPIPs

FIC

Financial Intelligence Centre

PUBLIC COMPLIANCE COMMUNICATION

PUBLIC COMPLIANCE COMMUNICATION

No. 51

GUIDANCE ON MEASURES RELATING TO

FOREIGN PROMINENT PUBLIC OFFICIALS,

DOMESTIC PROMINENT INFLUENTIAL

PERSONS, THEIR IMMEDIATE FAMILY

MEMBERS AND KNOWN CLOSE

ASSOCIATES

PCC SUMMARY

This PCC provides further clarity on the money laundering (ML) risk posed by, and CDD considerations to be applied to, a business relationship with a client who is a domestic prominent influential person (DPIP) or foreign prominent public official (FPPO) or are an immediate family member or known close associate of a DPIP or FPPO and must be read together with Guidance Note 7 (GN7).

Accountable institutions must determine whether their prospective client, existing client, beneficial owner of the client and person acting on behalf of the client, hold either a DPIP or FPPO position or are an immediate family member or known close associate of a DPIP or FPPO. The Centre strongly encourages that as part of effective ML risk management, accountable institutions should determine whether their client has at any point held a DPIP or FPPO position.

The ML risk associated with a client that is a DPIP must be assessed, as not all DPIPs pose an inherent high ML risk. However, FPPOs pose an inherent high ML risk, and the business relationship with an FPPO is always deemed high risk from a ML perspective. Even though a person may no longer meet the definition of holding either a DPIP or FPPO position, the risk factors relating to having been a DPIP or FPPO may still be relevant in determining the ML risk associated with the client.

When establishing a business relationship with DPIPs, presenting a high ML risk, and/or FPPOs, their immediate family members or known close associates, the accountable institution must conduct enhanced due diligence (EDD), of such persons, as part of their customer due diligence (CDD) and fulfil the requirements as set out in sections 21F, 21G and 21H of the FIC Act.

Clients that are immediate family members or known close associates of DPIPs and FPPOs, although not holding a DPIP or FPPO position themselves, must be treated as DPIPs or FPPOs for the purposes of ML risk determination and the resulting CDD, including enhanced due diligence and other applicable measures.

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Where the time periods as set out in Schedule 3A and 3B to the FIC Act lapse, it would be good practice, in terms of the risk-based approach, for the accountable institutions to regularly consider whether the former DPIP or FPPO, their immediate family members or known close associates, still poses a high risk from a ML perspective.

This PCC provides possible indicators of heightened ML risks and lists additional data sources that should be consulted in the determination of DPIPs and FPPOs, their immediate family members or known close associates.

DISCLAIMER

The publication of a PCC concerning any particular issue, as with other forms of guidance which the Centre provides, does not relieve the user of the guidance from the responsibility to exercise their own skill and care in relation to the users' legal position. The Centre accepts no liability for any loss suffered as a result of reliance on this publication.

COPYRIGHT NOTICE

This PCC is copyright. The material in a PCC may be used and reproduced in an unaltered form only for personal and non-commercial use within your institution.

Apart from any use permitted under the Copyright Act 1978, (Act 98 of 1978) all other rights are reserved.

OBJECTIVE

This PCC provides clarity regarding the requirement to determine whether a prospective client, existing client, the beneficial owner of the client and person acting on behalf of the client, holds a position of DPIP or FPPO, or whether the client is an immediate family member or known close associate of a DPIP or FPPO.

This PCC also provides guidance on the risk mitigating controls an accountable institution may follow for former DPIPs, their immediate family members or known close associates presenting a high ML risk and FPPOs, their immediate family members or known close associates, and further possible indicators of heightened ML risks.

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1 INTRODUCTION

1.1 A politically exposed person is an individual who holds or has held a prominent public function. Within this position, the person has a level of influence and control over public funds, benefits, and decision-making. The abuse of such a position in office could result in corruption and bribery that may serve as a predicate offence to ML.

1.2 Although there is a heightened risk of ML associated with politically exposed persons, it does not mean that all politically exposed persons are linked to and engage in illicit activities.

1.3 In the South African context, the FIC Act distinguishes between two types of politically exposed persons:

1.3.1 A DPIP is an individual who holds, including in an acting position for a period exceeding six months, or has held at any time in the preceding 12 months in South Africa, a prominent public function as listed in Schedule 3A of the FIC Act.

1.3.2 An FPPO is an individual who holds, or has held at any time in the preceding 12 months, in any foreign country a prominent public function as listed in Schedule 3B of the FIC Act.

Determination of persons holding a position of DPIP or FPPO

1.4 An accountable institution must provide for the manner in which and the processes by which it will determine if:

1.4.1 a prospective client;

1.4.2 existing client;

1.4.3 beneficial owner of the client; and

1.4.4 person acting on behalf of the client,

are DPIPs or FPPOs, or immediate family members or known close associates of DPIPs or FPPOs. This must be documented in their RMCP.

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For the purposes of this PCC 51, the persons referred to in subparagraphs 1.4.1 to 1.4.4 above, are collectively referred to as clients and other persons.

1.5 As part of an accountable institution's onboarding CDD and ongoing due diligence processes, they are required to understand the ML risk that a business relationship with a client will entail. For this reason, the accountable institution must:

1.5.1 Determine if the prospective client, existing client, the beneficial owner of the client and person acting on behalf of the client, is a DPIP or FPPO;

1.5.2 Determine if the prospective client, existing client, the beneficial owner of the client and person acting on behalf of the client, is an immediate family member or known close associate of a DPIP or FPPO;

1.5.3 Identify and assess the ML risk in relation to a DPIP;

1.5.4 Apply CDD which is commensurate to the ML risk the business relationship presents, which includes enhanced due diligence (EDD) for a DPIP that presents a high ML risk and an FPPO; and

1.5.5 Comply with the requirements as set out in sections 21F, 21G and 21H of the FIC Act.

1.6 In addition, the Centre strongly encourages that the accountable institution determines if the prospective client, existing client, the beneficial owner of the client and person acting on behalf of the client has at any point held a position of a DPIP or FPPO. Should the client have held such a position, this may be relevant to the ML risk determination and the subsequent resulting CDD or EDD process. See para's 2.19 to 2.25 below.

1.7 FPPOs inherently present a higher ML risk and as such, a business relationship with an FPPO is always deemed high risk from a ML perspective.

1.8 DPIPs are not automatically considered as presenting a high ML risk and must be fully assessed (considering all risk factors) to determine the ML risk that a business relationship with the DPIP poses.

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1.9 Guidance Note 7 (GN7) sets out guidance on DPIPs and FPPOs and explains how matters relating to DPIPs and FPPOs should be included in an accountable institution's risk management and compliance programme (RMCP). This PCC provides further clarity on the aspects noted in paragraph 1.4. and must be read together with the GN7.

1.10 This PCC is limited in application to the discussion of ML risk, and the CDD considerations to be applied to the business relationship with a DPIP and FPPO. Accountable institutions are reminded that their obligation to identify and assess terrorist financing (TF) and proliferation financing (PF) risk and should consult Guidance Note 6A and PCC 44 in this regard.

2 ML RISK AND CDD CONSIDERATIONS

2.1 The determination of persons holding a position of DPIP or FPPO is achieved by scrutinising all client and other persons' information both prior to establishing a business relationship and regularly on an ongoing basis. Regular ongoing due diligence is important as the client's and other person's DPIP or FPPO status can change during the business relationship with the accountable institution.

2.2 Although the FIC Act does not specify methods, there are various controls that can be used when determining whether a client or other persons are a DPIP or FPPO. This can include requesting this information directly from the client or other persons, and scrutinising client information through screening against relevant open data sources or against commercial databases or conducting independent research.

2.3 Accountable institutions should be aware that information provided by the client and other persons indicating their DPIP or FPPO status, may be misrepresented. Where a client and other persons declare that they are not a DPIP or FPPO, the accountable institution is strongly urged to further scrutinise the client information to determine whether that client and other persons are not DPIPs or FPPOs, immediate family members or known close associates. This will aid in mitigating the risk of such misrepresentation.

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2.4 Where a client or other person has acknowledged to the accountable institution that they are a DPIP or FPPO, immediate family member or known close associate, the accountable institution may accept that information on face value and treat that client and other persons as a DPIP or FPPO.

Other persons - FPPO and DPIP considerations

2.5 Legal entities are often abused for purposes of hiding or disguising involvement in illicit dealings. When a person is aware that they are under higher scrutiny (because they are a higher ML risk), they may seek to 'hide' behind a corporate entity or make use of family members to perform financial transactions on their behalf. The DPIP or FPPO may seek to hide behind these persons to evade detection and appear not to be linked to a transaction so that less scrutiny would be applied by the accountable institution.

2.6 It is for this reason that the determination of DPIP and FPPO applies to the beneficial owner of the client and person acting on behalf of the client.

Example 1: Determining if a beneficial owner and persons acting on a client's behalf is a DPIP or FPPO

Accountable institution A onboards client X who is a legal person. The beneficial owners of client X are identified as Mr P and Mr Q. The person acting on behalf of client X is Mr R.

Accountable institution A must scrutinise the information obtained to ascertain if Mr P, Mr Q and Mr R are holding positions of DPIP or FPPO.

2.7 An immediate family member or a known close associate of a DPIP presenting a high ML risk or an FPPO is to be handled as if they are a DPIP presenting a high ML risk or an FPPO. Although the immediate family member or known close associate may not be a politically exposed person themselves, their relationship with a DPIP presenting a high ML risk or an FPPO impacts on their ML risk. Do consult Guidance note 7 for information on which persons are regarded as known close associates.

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Example 2: Client is an immediate family member of a DPIP that presents a high ML risk

Accountable institution A onboards a client, Mr X. Mr X is the husband (immediate family member) of Mrs X, a DPIP. Accountable institution A must scrutinise the information regarding Mr X and determine that he is an immediate family member of Mrs X.

Accountable institution A must then assess whether Mrs X (the DPIP) poses a high ML risk. Where Mrs X poses a higher ML risk the accountable institution must comply with the requirements as set out in section 21H and 21G of the FIC Act when establishing the business relationship with Mr X as well as apply EDD.

2.8 Where the beneficial owner of the client (a legal person, trust or partnership) is a DPIP presenting a high ML risk or an FPPO, the requirements as set out in section 21F and 21G of the FIC Act applies to the client (legal person, trust or partnership). The business relationship with the legal person, trust or partnership as the client would be regarded as dealing either with a DPIP presenting a high ML risk or an FPPO in this instance.

2.9 Trustees, founders, and named beneficiaries, of a trust, are all regarded as beneficial owners of the trust and as such, the accountable institution must scrutinise their information to determine whether these beneficial owners are DPIPs or FPPOs.

Example 3: Beneficial owner is a FPPO within a trust

Accountable institution A onboards client B.

Client B is a trust, and the sole beneficiary is identified as person X. Person X is a FPPO.

Accountable institution A must comply with section 21F of the FIC Act and apply EDD in respect of the business relationship with client B (the trust).

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ML risk determination of DPIPs

2.10 After an accountable institution has determined that a client or other persons are DPIPs, immediate family members or known close associates, the accountable institution must assess the ML risk that the DPIP poses. Refer to the discussion on risk assessment and understanding risk in Guidance note 7, which indicates that several factors must be considered.

2.11 Holding a DPIP position or being an immediate family member or known close associate of a DPIP is a characteristic of a client factor that impacts upon that client's ML risk profile.

2.12 DPIP and FPPO status may change over the business relationship between the client and the accountable institution. A client may not be a DPIP or FPPO at onboarding but may hold this position at a later stage. Similarly, the ML risk may change during the course of the relationship with a DPIP. This must be considered as part of the accountable institution's ongoing ML risk understanding of their client.

Obligations in terms of Chapter 3 of the FIC Act

2.13 There are several control measures that the FIC Act prescribes for clients that pose a high ML risk. These measures are complimentary. Where a client is an FPPO or a DPIP that poses a high ML risk, there are additional measures that must be applied.

2.14 In summary, when a client is a DPIP that poses a high ML risk or FPPO, the accountable institution must:

2.14.1 Establish and verify the client information. Given that the client poses a high risk, this would entail EDD,

2.14.2 Understand and obtain information on the business relationship and

2.14.3 Undertake obligations set in sections 21F and sections 21G of the FIC Act

2.15 The obligations set in sections 21F and 21G include:

2.15.1 Obtain senior management approval

2.15.2 Establish the source of wealth and funds of the client, and

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2.15.3 Conduct enhanced ongoing monitoring.

Potential indicators of heightened ML risk when dealing with DPIPs

2.16 Various potential indicators can contribute toward a heightened risk of ML, these include but are not limited to:

2.16.1 The nature and seniority of the DPIP position, which may be indicative of the level of influence and sway they may have.

2.16.2 The DPIP declares that he/she is not a DPIP, however, subsequent searches through independent third-party sources indicates that the individual is in fact a DPIP.

2.16.3 The DPIP avoids providing information that would reveal he/she is a DPIP.

2.16.4 The DPIP is the beneficial owner, part of senior management, or exercises control through other means of a legal person, trust or partnership for commercial purposes.

2.16.5 Where a legal person, trust or partnership avoids providing beneficial ownership information, and it is found that the beneficial owner is a DPIP.

2.16.6 The DPIP avoids providing source of wealth and source of funds information.

2.16.7 There are negative media or investigative reports on the DPIP, immediate family members or known close associates.

2.16.8 There are negative commission reports, or judicial findings on the DPIP, immediate family members or known close associates.

2.16.9 Unethical conduct by a DPIP.

2.16.10 The DPIP controls access to government funds, public funds or controls major public benefits, i.e., decisions on whether to award tenders, grants, procurement, and licenses etc.

2.16.11 Credible allegations of ML, TF, proliferation financing (PF), bribery, corruption or any other predicate offence involving the DPIP.

2.16.12 Previous convictions of the DPIP for ML, TF, PF, bribery, corruption, or any other predicate offence.

2.16.13 The DPIP is closely associated with persons who have been convicted of ML, TF, PF, bribery, corruption, or any other predicate offence.

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2.16.14 The DPIP has been previously charged with ML, TF, PF, bribery, corruption, or any other predicate offence.

2.16.15 The DPIP, their immediate family members or known close associates' transactions and client activity do not align with their stated source of wealth and source of funds.

2.16.16 The DPIP, their immediate family members or known close associates' assets do not align to the source of wealth and source of funds.

2.16.17 The DPIP, their immediate family members or known close associates hold accounts in other countries.

2.16.18 The DPIP, their immediate family members or known close associates hold or utilise customer foreign currency accounts, foreign currency wallets and any other foreign currency product or store of value.

2.16.19 Large amounts of cash transactions or cross-border transactions take place in the DPIP, their immediate family members or known close associates' accounts.

2.16.20 Deposits are made into the DPIP, their immediate family members or known close associates' accounts followed by immediate transfers outward.

2.16.21 The DPIP, their immediate family members or known close associates have numerous accounts with different banks.

2.16.22 The DPIP's immediate family members or known close associates avoid providing information that would reveal they are linked to a DPIP.

2.16.23 The DPIP's immediate family members and known close associates control legal persons, trusts and/or partnerships which have been awarded public funds or benefits.

2.16.24 The client is an immediate family member or known close associate of a former DPIP that presents a high ML risk.

2.16.25 The DPIP's immediate family member and known close associate is allegedly involved in or was previously convicted of ML, TF, PF or any other predicate offence.

2.16.26 The accountable institution has filed suspicious and unusual transaction reports through to the Centre, on either the DPIP, their known close associates or immediate family members.

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2.17 The above list of potential indicators is not an exhaustive list. The Financial Action Task Force Guidance on prominent influence persons sets out red-flag indicators when dealing with DPIPs:

(http://www.fatf-gafi.org/media/fatf/documents/recommendations/guidance-pep-rec12-22.pdf).

2.18 The above potential indicators do not serve as confirmation of a higher ML risk, but merely indicate a potential heightened ML risk. Accountable institutions must apply their own risk-based approach when determining the ML risk.

ML risk determination of persons who previously held positions of DPIP or FPPO

2.19 Where the time periods as set out in Schedule 3A and 3B to the FIC Act lapse, the person would no longer be deemed a DPIP or FPPO in terms of the FIC Act. The Centre strongly encourages that as part of the accountable institutions risk-based approach, the accountable institution should consider whether the former DPIP or FPPO still poses a high-risk from a ML perspective.

2.20 A person's DPIP or FPPO status can change should they no longer hold the position that qualifies them as such. However, even though a person no longer fills such a position, they could still be considered as presenting a high ML risk by the accountable institution.

2.21 A prior FPPO or high-risk DPIP status is a strong indicator that the client could still present a high-risk from a ML perspective. The fact that a client ceases to hold a position of either a DPIP presenting a high ML risk or an FPPO, does not eliminate the possibility that the client remains a high risk from a ML perspective.

2.22 As such, accountable institutions, in adopting their own risk-based approach, can consider the fact that a client was previously a DPIP presenting a high ML risk or an FPPO as part of their client indicators for ML risk determination.

2.23 There may be scenarios where a former a DPIP presenting a high ML risk or an FPPO still exercises undue influence over a current DPIP or FPPO, to gain undue benefits

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for the former DPIP or FPPO, their immediate family members or known close associates. Accountable institutions should remain aware of the ML risks and adopt controls to determine such scenarios. This scenario is a strong indicator that the immediate family members or known close associates of a former DPIP presenting a high ML risk or an FPPO may also pose a high-risk from a ML perspective.

2.24 There may be scenarios where former a DPIP presenting a high ML risk or an FPPO are connected to, or exercise influence over corporate entities (non-profit organisations, foundations, trusts, companies etc.) through which the former DPIP presenting a high ML risk or an FPPO is able to gain undue benefits either for themselves, their immediate family members or known close associates. Accountable institutions should remain aware of the ML risks and adopt controls to determine such scenarios. This scenario is a strong indicator that the corporate entities may also pose a high risk from a ML perspective.

2.25 This approach does not result in the client being classified as a DPIP or FPPO, nor their immediate family members, known close associates or connected entities per definition, rather, it would serve as a high-risk client indicator. Should the client present a high risk, in addition to CDD, the accountable institution must apply EDD, and it is recommended that the accountable institution adopt the measures as set out in sections 21F and 21G of the FIC Act.

Example 4: ML risk consideration for former DPIP

While onboarding a client, accountable institution A determines that the client was a mayor, however, has not held this position in the last four years. The former mayor was charged with corruption and bribery during his term.

Schedule 3A of the FIC Act does not list a former mayor as a DPIP, however, based upon the ML risk associated with that former mayor, accountable institution A in terms of its risk-based approach, determines that the former mayor poses a high ML risk. Accountable institution A therefore applies EDD as well as the measures as set out in section 21G of the FIC Act.

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De-risking

2.26 In addition to the principles as set out in Guidance note 7, it is not considered effective nor adequate risk management if an accountable institution decides to de-risk a client for the mere fact that the client is a DPIP or FPPO. It is the Centre's view that where an accountable institution de-risks solely based upon the fact that a client is a DPIP or an FPPO, without regard to any other ML risk factors, then that accountable institution has not complied with its obligation to follow a risk-based approach.

2.27 Where an accountable institution takes the decision to not onboard a certain class of clients, the accountable institution must be able to demonstrate the application of a risk-based approach, in terms of which several factors have been considered and not just one (i.e., the fact that clients or prospective clients are DPIPs or FPPOs).

2.28 It is the Centre's view that the accountable institutions would have to demonstrate why the ML risk is so high or severe, that the accountable institutions do not have appetite to onboard a DPIP presenting a high ML risk or an FPPO.

2.29 Ineffective application of de-risking can cause inadvertent consequences including the loss of valuable information through regulatory reporting due to the Centre.

3 DATA SOURCES TO CONSIDER FOR FPPO AND DPIP DETERMINATION

3.1 Annexure A and B provides certain data sources where some DPIP and FPPO information may be obtained. The data sources provided are not exhaustive, nor meant to be authoritative in nature. Annexure A and B are an addition to the lists as provided for in Guidance note 7.

3.2 Annexure A and B merely serves as an additional tool meant to assist accountable institutions in identifying relevant data sources and it is not mandatory for the accountable institution to use these data sources. The accountable institution remains liable to determine all relevant sources upon which it depends, to determine whether or not a client is a DPIP or FPPO as per Schedules 3A and 3B of the FIC Act, and further whether a client is an immediate family member and or known close associate.

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3.3 In addition to publicly available information reflecting DPIP and FPPO information, there are various other commercial databases that provide DPIP and FPPO information as well as some of their immediate family members and known close associates' information.

3.4 The Centre does not endorse any listing, or service offerings by third-party providers. The Centre does, however, encourage accountable institutions to keep up to date with the available sources.

3.5 The combination of sources relied upon by the accountable institutions must jointly provide for all persons who fall within the ambit of Schedules 3A and 3B to the FIC Act. The sources must be independent, reliable, and current.

3.6 Where accountable institutions download internet-based information, they should revisit the websites frequently as the source data is subject to constant change.

4 COMMUNICATION WITH THE CENTRE

4.1 The Centre has a dedicated compliance contact centre geared to assist accountable institutions to understand their registration obligations in terms of the FIC Act. Please call the compliance contact centre on 012 641 6000 and select option 1.

4.2 Compliance queries may also be submitted online by clicking on: http://www.fic.gov.za/ContactUs/Pages/ComplianceQueries.aspx or visiting the Centre's website and submitting an online compliance query.

Issued By:

The Director

Financial Intelligence Centre

3 December 2021

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ANNEXURE A

Sources of domestic prominent influential persons

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[tbl-1.html](tbl-1.html)

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An officer of the South African National Defence Force above the rank of major-general; Note: This will include persons holding the position of General and Lieutenant General in the South African National Defence Force.

https://www.gov.za/about-government/contact-directory/departments/departments/defence-department

- The position of head, or other executive directly accountable to that head, of an international organisation based in the Republic of South Africa.

http://www.dirco.gov.za/foreign/forrep/intorg.htm

http://www.dirco.gov.za/foreign/forrep/intorg.htm

*website addresses are correct as at date of issuance and are subject to change.

ANNEXURE B

Sources of foreign prominent public officials

[tbl-2.html](tbl-2.html)