The practice of money laundering has long since been regarded as a criminal offence though it is primarily during recent times that the practice has been undertaken on such a scale as to pose a genuine threat to the international political and financial orders. This is due to its association with crimes ranging from weapons dealing to embezzlement to terrorism. Of particular concern is the role of Politically Exposed Persons (PEPs) such as Augusto Pinochet in Chilli and Sani Abacha in Nigeria, a separate category of individual first identified by the Financial Task Force (FATF). Though definitions vary, PEPs generally include heads of state, other high ranking government officials, and those associated with them. For financial institutions, PEPs pose a high degree of risk because, if it is found that their assets were obtained by illegal means, this may result in financial ruin for the institution—like the now defunct Riggs Bank which had close dealings with Pinochet—due to the impact this has on their reputation as well as potentially millions of dollars in fines. As such, Canada, with the introduction of Bill C-25, the European Union, with the 3rd EU Money Laundering Directive, the United States, with the Patriot Act, and others have constructed policies which have set standards for defining PEPs as well as standards of due diligence which financial institutions must follow in order to ensure to the extent that is possible that PEPs with whom they do business have acquired their assets in a legal and legitimate manner. Though these conditions place a heavy burden on banks, credit unions, and other financial organizations, the extent of the threat is such that the benefits which can be derived from following these procedures likely out-weigh the not inconsiderable costs.
[...] This trend has been attributed to the higher level of public trust which people in those countries have in public officials and others who meet the criteria of PEPs, though this is changing PEPs: Historical Examples Having discussed the issue of money laundering in general and PEPs in particular, the paper will now turn to an investigation of historical examples where PEPs engaged in the practice of money laundering in a highly illegal and destructive manner. This section is intended to synthesize the first two by establishing that the link between PEPs, money laundering, and various crimes is one that is clear but at the same time exceedingly multifaceted. [...]
[...] In the FATF's 2003-04 Typologies Report, the organization investigated a variety of instances where PEPs were involved in money laundering and concluded that (FATF 2003-04 Report): the source of the funds that PEP may try to launder is not only bribes, illegal kickbacks and other directly corruption-related proceeds, but also may be embezzlement of outright theft of State assets or funds from political parties . as well as tax fraud. In certain cases a PEP may be directly implicated in other types of illegal activities such as organized crime or narcotics trafficking. [...]
[...] The White Paper: Due diligence obligations PEP, Directive 2005/60/EG, more commonly known as the 3rd EU Money Laundering Directive, was issued towards the end of the year 2005 and declared that PEPs are to be given mandatory special treatment. This imposed several broad requirements on PEPs including that they (White Paper, n.p.): 1. to have in place appropriate risk-based procedures through which it can be determined whether the customer is a politically exposed person or not to have obtained the approval of management prior to entering into a businesses relationship with this customer to take appropriate measures in order to be able to determine the source of the asset and the funds that are applied as part of the business relationship and/or transaction to subject the business relationship to an enhanced and continuing monitoring process. [...]
[...] It will also be crucial for various international organizations and individual countries to ensure that their regulatory schemes are compatible as well as that they satisfy the conditions of the FATF Politically Exposed Persons (PEPs) Having provided an overview of money laundering in general it is now possible to turn to the principle focus of this paper, PEPs, which due to their unique position have opportunities to engage in the practice in ways which the other groups and organizations discussed so far may not be able to do. [...]
[...] Modern Day Problems Who is Involved Though the focus of this paper will be principally PEPs, it should be noted that there are many other parties and organizations involved in the practice throughout the world, many of which may be interconnected either in terms of the actual money laundering itself or the underlying schemes which necessitate it. Terrorists According to Masciandaro (2004), the full extent of the potential dangers associated with money laundering became realized on September when terrorists attacked the United States, killing almost 3000 people and introducing a new era of not just warfare but a new paradigm in international finance, particularly the “'neutrality' of the capital exchanged there” (p. [...]
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