Implementation of the concept of “politically exposed persons (PEPs)” in India
| Published date | 03 January 2017 |
| Pages | 89-98 |
| Date | 03 January 2017 |
| DOI | https://doi.org/10.1108/JMLC-01-2016-0001 |
| Author | Ramandeep Kaur Chhina |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial compliance/regulation,Financial crime |
Implementation of the concept of
“politically exposed persons
(PEPs)” in India
Ramandeep Kaur Chhina
School of Management and Languages, Heriot-Watt University, Edinburgh, UK
Abstract
Purpose –The purpose of this paper is to critically examine the concept of “politically exposed persons
(PEPs)” as provided under the Indian anti-money laundering (AML) regime, particularly focussing on the
Reserve Bank of India guidelines to its supervised banks on dealing with the potential money laundering risks
posed by PEPs.
Design/methodology/approach –The denition of PEPs as provided by international standard setters
and the concept as dened by the Indian AML regime was examined to examine the extend of the compliance
of the Indian AML regime with the mandatory requirements of revised 2012 Financial Action Task Force
(FATF) recommendations and other international standards.
Findings –The paper clearly establishes that the current AML regime of India does not fully comply with
the mandatory requirements of the revised 2012 FATF recommendations, and the RBI guidelines do not
provide any clear indications to its supervised banks on the effective development and implementation of
AML PEPs control. The paper argues that it is high time for India to increase its regulatory focus on the issue
of PEPs and to expand its denition of PEPs by including both domestic PEPs and “close associates” of PEPs
within the denition.
Originality/value –The paper demonstrates in an exceptional way that despite variations in the scope of
the PEPs denition at an international level, all the standard setters have included certain key individuals
(both domestic and foreign PEPs and “close associates” of PEPs) within the scope of the denition and how the
legal and regulatory requirements in India are falling short of compliance even with these minimum key
requirements. By adopting a step-by-step approach in critically examining the current legal and regulatory
requirements enforced on banks in India to efciently deal with the money laundering risks posed by PEPs,
the paper makes a valuable contribution in highlighting the steps that might be taken to strengthen PEPs’
AML controls in India.
Keywords Money laundering, Reserve Bank of India, Corruption and money laundering, PEPs,
Politically exposed persons
Paper type Research paper
Introduction
In the Mutual Evaluation Report (MER) of India, which was adopted by the Financial Action
Task Force (FATF) on 24 June 2010, it was reported that the preventive measures in place in
India at that time to deal with the money laundering risks posed by political exposed persons
(PEPs) were inadequate and needed to be strengthened (Financial Action Task Force
(FATF), 2010). In MER 2008, India was rated to be “partially compliant” with
Recommendation 6 of the 2003 FATF Recommendations (hereinafter “old FATF
Recommendations”). The major shortcomings in the Indian anti-money laundering (AML)
law and regulations were identied to be the lack of requirement by the Reserve Bank of
India (RBI) circulars to implement on-going risk management procedures for identifying
PEPs and to apply enhanced measures to close relatives of PEPs (Financial Action Task
Force (FATF), 2010, p. 17).
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1368-5201.htm
Politically
exposed
persons
89
Journalof Money Laundering
Control
Vol.20 No. 1, 2017
pp.89-98
©Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-01-2016-0001
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