On the 8th October, 2018, the Malta Financial Services Authority (MFSA) has issued “guidance notes on Politically Exposed Persons” (PEPs), aimed to assist entities qualified as subject persons to comply with their customer due diligence requirements under the Prevention of Money Laundering and Financing of Terrorism Regulations (‘PLMFTR’) and the Implementation Procedures issued by the FIAU.
These guidance notes assist subject persons to identify and classify PEPs as well as the type of risk posed by a PEP when conducting their statutory risk based analysis. The guidance notes emphasise that subject persons are also obliged to carry out an enhanced due diligence when PEPs have been identified, irrespective of the level of risk posed by a PEP.
In particular, the guidance notes provide a ‘Maltese perspective’ on individuals who are deemed to be considered as PEPs and outlines the procedures which should be adopted to determine whether a person should be classified as PEP. The guidance notes clarify that EDD should apply as long as the PEP remains entrusted with a prominent public function and for a subsequent 12 month period following when he / she cease to be a PEP.
The guidance notes list the EDD measures which should be applied to all PEPs and interestingly introduces certain characteristics to determine whether a PEP is deemed pose a low risk or a high risk.
The guidance notes maintain that in a Maltese contexts PEPs should be understood to include the following:
- The President of the Republic of Malta
- The Prime Minister;
- Ministers and Parliamentary Secretaries
- members and the Speaker of the House of Representatives of the Republic of Malta;
- Maltese members of the European Parliament
- Individuals entrusted with the management and administration of a political party but do not include paid up members or regional or town representatives
- judges and magistrates
- The Auditor General and Deputy Auditor General;
- The Governor and Deputy Governor of the Central Bank of Malta
- Ambassadors and charges d’affaires of foreign jurisdictions in Malta
- Maltese ambassadors and charges d’affaires abroad.
- The Commander and Deputy Commander of the Armed Forces of Malta
- members of the administrative, management or supervisory boards of commercial entities and companies in which the Government of Malta has an ownership interest or control of more than 50%
The guidance notes maintain that the above list is not exhaustive and PEPs could include individuals which other public functions and hence being considered “prominent” public functions such as:
- Permanent secretaries within all the ministries;
- Chiefs of staff within all the ministries;
- The Commissioner and Deputy Commissioners of police;
- The Attorney General
Individuals who are entrusted with a prominent public function equivalent to the above in an EU institution or other international body would also be considered PEPs and include the Maltese EU Commissioner, Maltese Members of the European Parliament, Maltese Members of the European Court of Auditors and of the European Court of Justice.
With respect to EDD Measure which should be carried out when a PEP is identified, the guidance notes stipulates that different levels of AML / FT risk might be identified depending on the type of PEP, hence putting an obligation on the subject persons to assess the level of risk posed by PEPs.
Characteristics which might suggest that a PEP is of a low risk include those where such PEP:
- Is seeking to have access to a product/service/transaction which has been assessed by the subject person to pose a low risk;
- Does not have executive decision-making responsibilities;
- Is subject to rigorous disclosure requirements, such as registers of interests, independent oversight of expenses;
- Is entrusted with a prominent public function in a jurisdiction where information is available showing that the jurisdictions has low levels of corruption, for example political stability, and free and fair elections, strong compliance with AML/CFT rules;
On the other-hand characteristics which might suggest that a PEP is of a high risk include those where:
- The PEP is seeking to have access to a product, service or transaction which is capable of being misused to launder the proceeds of corruption or bribery;
- Credible allegations of financial misconduct on the PEP;
- Personal wealth or lifestyle (of the PEP) inconsistent with known legitimate sources of income or wealth; and
- The PEP is entrusted with a prominent public function in a jurisdiction where there is a higher risk of corruption
The guidance also list down a set of characteristics suggesting that a family member or a close associate pose a high risk.
Lastly irrespective of the circumstances or characteristics of a PEP indicating a high or low risk, the guidance notes emphases that enhanced due diligence should be applied.
FF International advices clients on AML / CFT issues.
For more information kindly contact:
Franco Falzon CPA LL.M
(Managing Partner)
E: franco@ffinternational.com.mt
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