Banks with politically exposed persons as customers must stay alert

livemint.com:

₹30 crore of unexplained currency in a Jharkhand legislator’s home, it is time to shine a light on a somewhat obscure term: Politically exposed persons (PEPs). This term refers to individuals who hold political office or public positions such as judgeships and bureaucracy posts, or have a close association with those who hold such authority. Data from Rzolut, a risk and compliance technology and data provider, reveals that there are over 2.3 million PEPs around the world, ranging from country presidents to municipality officials.

These positions tend to have stronger links than others with cases of corruption, money-laundering and other financial crimes. For instance, in December 2023, Senator Bob Menandez in the US was found in possession of several gold bars at his home. He was charged with having accepted bribes from various businesses.

The vast quantities of cash recovered time and again from our own politicians here in India have also often travelled through benami bank accounts and other dubious channels. Note that the currency notes printed by the Reserve Bank of India (RBI) are distributed only through what are described in banking regulations as ‘scheduled banks.’ There is no other way for them to enter general circulation. Within the bounds of privacy norms, it would be prudent for banks to keep a watch on the actions of customers who are PEPs, not just to manage their financial risks, but also to satisfy the regulatory requirements of India’s central bank and other regulators around the world.