Amendments to the the Act on Measures against Money Laundering and Terrorist Financing (2009:62) concerning Politically Exposed Persons, will enter into force in Sweden on 1st August 2015. At the same time, the Financial Supervisory Authority’s regulations and general guidelines (FFFS 2009:1) will lapse.1
The Act was created in response to the threat that terrorist financing and money laundering poses to the credibility of the financial system. Institutions associated with the financing of terrorism run the risk of causing damage to the economy and as a consequence, Sweden is taking preventative measures to combat this threat.
Background: the Financial Action Task Force
The Financial Action Task Force (FATF) was founded in 1989 and currently has 36 members which work together to implement standards on both a national and international level. Sweden has been a member of this group since 1990. The FATF’s standards aim to promote the effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the international financial system.
The FATF has recommended that countries take decisive action regarding criminal activity and money laundering, stemming primarily from drug trafficking. The Swedish Act on Measures against Money Laundering and Terrorist Financing is therefore in place to ensure that institutions operating within Sweden are compliant with the FATF’s guidelines.
The international standards specify that organisations should take measures that go beyond basic customer due diligence to determine whether the customer or the customer’s beneficial owner is a Politically Exposed Person. The Swedish legislation has been adapted to conform to these international standards. New law impacts significantly KYC processes of Swedish organizations regulated by local Financial Services Authorities. Larger amounts of checks must be now conducted. Datasets which help to identify Politically Exposed Persons have to be used in KYC processes
Politically Exposed Persons
The Act on Measures against Money Laundering and Terrorist Financing (2009:62) is being amended to include the definition of a Politically Exposed Person, including their family members and known associates. ‘Family members’ refers to spouses, registered partners, cohabitants, children and their spouses, registered partners or cohabitants, and parents.
According to The Swedish Government (Regeringen) a Politically Exposed Person (PEP) is someone who is considered to hold a position of influence and is therefore potentially at risk of becoming involved in bribery and corruption.2 The Money Laundering Act advises that institutions must take a risk-based approach when dealing with these individuals.
The starting point in identifying Politically Exposed Persons is to take some basic measures to gain accurate knowledge of the customer. However, these basic measures are not always sufficient to detect whether the customer or beneficial owner is a PEP. To identify whether a customer is a PEP, it is advisable to run checks against a PEP list.3
The Swedish government has stipulated that more stringent measures for customer due diligence should be taken against PEPs for at least 18 months after the individuals cease to hold their position of influence. According to the standards, a person who has stopped exercising their function can continue to be considered a PEP as long as a risk assessment is carried out which justifies dealing with the individual as such.4
According to the new standards, Politically Exposed Persons can be split into three categories:
- Foreign PEPs – those who hold (or have held) a position of power in another country
- Domestic PEPs – those who hold (or have held) a national important public function
- Personnel of international organisations – those who hold (or have held) a function in the management of an international body
Important public functions include:
- Heads of state or government, ministers and deputy or assistant ministers
- Judges of the Supreme Court, constitutional courts or other bodies
- Senior officials at the audit authorities and members of the central bank’s governing bodies
- Ambassadors, heads of mission and senior officers in the armed forces
- People included in the administration, management or supervision of state-owned companies
How to Check for PEPs
It is possible to identify whether a person can be regarded as ‘politically exposed’ by performing checks against a PEP list.5 Today, there is no government or authority that publishes and maintains an international PEP database because of the enormity of the task – the list of potential PEPs is huge and continually changing. Instead, institutions rely on data providers, like Accuity, to undertake the continuous research and analysis required to maintain a comprehensive PEP database.6 An organization should maintain records of the review and analysis of a PEP’s transactions for at least five years and must keep and continuously update risk assessment documentation.7
If you would like to find out about how Accuity’s global PEP database can help you to comply with Swedish regulation, please contact Pernilla.Nelen@accuity.com.
Author: Pernilla Nelén, Accuity, 2015-07-13
Information in this article has been sourced from:
The Swedish Government (www.regeringen.se)
Swedish Parliament (www.riksdagen.se)
Swedish Financial Supervisory Authority (www.finansinspektionen.se)
Svenska Bankföreningen (www.swedishbankers.se)
The Swedish Data Protection Authority (www.datainspektionen.se)