Challenges of identifying and monitoring politically exposed persons (PEPs) in Latin America
| Published date | 23 July 2020 |
| Pages | 266-275 |
| Date | 23 July 2020 |
| DOI | https://doi.org/10.1108/JMLC-05-2020-0061 |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial compliance/regulation,Financial crime |
| Author | Joel Harry Clavijo Suntura,Piedad Maribel Rosero Rosero,Gloria Esperanza Aragón Cuamacás |
Challenges of identifying and
monitoring politically exposed
persons (PEPs) in Latin America
Joel Harry Clavijo Suntura
Department of Law faculty, Universidad Técnica del Norte, Ibarra, Ecuador
Piedad Maribel Rosero Rosero
Faculty of Economics, Universidad Técnica del Norte, Ibarra, Ecuador, and
Gloria Esperanza Arag
on Cuamac
as
Faculty of Accounting, Universidad Técnica del Norte, Ibarra, Ecuador
Abstract
Purpose –The purpose of this paperis to analyze politically exposed persons (PEPs) accordingto Financial
Action Task Force (FATF) Recommendations and assess the identification process followed by financial
institutionsto create a harmonized regional model for PEPs identificationin Latin America.
Design/methodology/approach –FATF Recommendation No.12 states that financial institutions
should identifyPEPs. To do so, the latter uses either an internal identification system or an externaldatabase.
Within this framework, thepurpose of the research work is to determine whether the procedureadopted by
the regulated entities complies with the requirements of the regulations. Both analytical and interpretative
methodshave been used for this purpose.
Findings –In accordance with FATF Recommendation No.12, national and foreign PEPs, as well as
officials of relevant internationalorganizations, close relatives and closest associatesmust be identified. This
wide range of people formsan hybrid type of PEPs. Because of the lack of a harmonized identification policy,
it is likelythat some people who meet these conditions may notbe spotted.
Originality/value –PEPs control success relies on accurate and prompt identification. Therefore, it is
crucial to create an inter-state model of harmonized identification at a regional level in Latin America. It
includes not only the participation of the obligated subjects but also the sector entities associated to the
concernedeconomic activity.
Keywords Politically exposed persons, Financial intelligence units, Identification, Monitoring,
Risk, Latin America
Paper type Research paper
1. Introduction
The prevention of money laundering includes the identification, control and monitoring
of politically exposed persons (PEPs) because it is assumed that not only they have a
direct link to illegal money laundering activities, but also because their important public
positions make them particularly prone to corruption acts (Falco, 2018;Rossi et al., 2017;
Choo, 2011).
In this framework, the attempt to legitimate capital implies to not only the alleged
participation of a PEP but also third parties. Through a series of complex financial
operations, the latter try to hide the source of illegal money. This makes the identification
and prosecution difficult (Canestri, 2019;Oke, 2015;Geary et al.,2010;Greenberg and
Schantz, 2010;Gilligan,2009).
JMLC
24,2
266
Journalof Money Laundering
Control
Vol.24 No. 2, 2021
pp. 266-275
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-05-2020-0061
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