The U.S. Treasury Department Financial Crimes Enforcement Network (“FinCEN”) issued an advisory describing how corrupt foreign “politically exposed persons” (“PEPs”) access the U.S. financial system. The advisory provides guidance on the (i) risks that U.S. financial institutions face when providing banking services to PEPs and their financial facilitators and (ii) types of suspicious transactions that may trigger reporting obligations under the Bank Secrecy Act.
The advisory includes the following non-exclusive list of red flags that may help identify methods used to hide the proceeds of human rights abuses and other illicit international activities:
- using third parties when it is not normal business practice;
- using third parties to shield the identity of a PEP;
- using family members or close associates as legal owners;
- using corporate vehicles such as limited liability companies (LLCs) to hide ownership, involved industries or countries;
- receiving information from PEPs that is inconsistent with publicly available information;
- transactions involving government contracts that (i) are awarded to companies in a seemingly unrelated line of business, or (ii) originate from or are going to shell companies that appear to lack a general business purpose;
- documents supporting transactions regarding government contracts that include (i) charges that are higher than market rates, (ii) overly simplistic information or (iii) insufficient detail;
- payments connected to government contracts that come from third parties that are not official government entities; and
- transactions involving property or assets expropriated or otherwise taken over by corrupt regimes, including senior foreign officials or their cronies.
The advisory also provides examples of suspicious activities by PEPs and their financial facilitators, such as:
- moving funds repeatedly to and from countries with which the PEP does not have ties;
- requesting to use services of a financial institution or a designated non-financial business or profession (“DNFBP”) not normally associated with foreign or high-value clients;
- holding substantial authority over or access to state assets and funds, policies and operations; and
- controlling the financial institution or DNFBP that is a counterparty or correspondent in a transaction.
The advisory indicated that FinCEN would update these red flags and typologies in the future, and reminded financial institutions of their obligation to identify suspicious transactions and file suspicious activity reports (SARs) under the Bank Secrecy Act.