IBA Compliance Connection

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One of our customers initiated an ACH credit transaction to pay an individual who is a politically exposed person. The dollar amount is below $10, and after calling our customer, we learned that the payment was for an item the customer had purchased online. What the risks of processing the ACH transaction?

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From what you have told us, the risks of processing the ACH credit transaction appear to be low.

The FFIEC BSA/AML Examination Manual requires financial institutions to establish policies, procedures and processes that provide for the appropriate scrutiny and monitoring of politically exposed persons (PEPs), particularly when a PEP is opening an account. However, financial institutions are not prohibited from servicing transactions to PEPs. They “should take all reasonable steps to ensure that they do not knowingly or unwittingly assist in hiding or moving the proceeds of corruption . . . .”

The Interagency “Guidance on Enhanced Scrutiny for Transactions that May Involve the Proceeds of Foreign Official Corruption” also identifies specific red flags for identifying suspicious transactions with foreign officials (PEPs), such as “frequent or excessive use of funds transfers or wire transfers” and “wire transfers . . . where the beneficial owner information is not provided with the wire transfer, when inclusion of such information would be expected,” among other red flags.

Based on the FFIEC Manual and the Interagency Guidance, the risks of this particular transaction appear to be low. You are not opening an account or establishing a long-term relationship with the PEP, this is a one-time transaction, the dollar amount is low, and the transaction apparently does not trigger any of the red flags identified in the Interagency Guidance.

For resources related to our guidance, please see:

  • FFIEC BSA/AML Examination Manual, Politically Exposed Persons—Overview (“Banks should take all reasonable steps to ensure that they do not knowingly or unwittingly assist in hiding or moving the proceeds of corruption by senior foreign political figures, their families, and their associates. Because the risks presented by PEPs will vary by customer, product/service, country, and industry, identifying, monitoring, and designing controls for these accounts and transactions should be risk-based.”)