Effective June 17, 2017, amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and associated regulations resulted in new obligations regarding politically exposed persons (PEPs)—both domestic and foreign— as well as heads of international organizations (HIOs). FINTRAC has published guidance describing these obligations.
A PEP or a HIO is a person entrusted with a prominent position that typically comes with the opportunity to influence decisions, institutions, and the ability to control resources. The influence and control PEPs and HIOs have puts them in a vulnerable position for corruption.
Corruption can be defined simply as the misuse of public power for private benefit. Internationally, as well as within Canada's own anti-money laundering and anti-terrorist financing legislation, it is important to understand that the possibility for corruption exists, and that PEPs or HIOs can be vulnerable to carrying out, or being used for, money laundering or terrorist activity financing offences.
Part of knowing your clients is determining whether a person is a foreign PEP, a domestic PEP, a HIO, or a family member or close associate of one of these people.
Who is a foreign PEP?
Your client is a foreign PEP if he or she holds or has ever held one of the following offices or positions in or on behalf of a foreign country:
- Head of state or government;
- Member of the executive council of government or member of a legislature;
- Deputy minister (or equivalent);
- Ambassador or an ambassador's attaché or counsellor;
- Military general (or higher rank);
- President of a state-owned company or bank;
- Head of a government agency;
- Judge of a supreme court, constitutional court or other court of last resort; or
- Leader or president of a political party in a legislature.
These persons are foreign PEPs regardless of citizenship, residence status or birth place. A person determined to be a foreign PEP retains this status for life.
Who is a domestic PEP?
A domestic PEP is a person who holds—or has held within the last 5 years—a specific office or position in or on behalf of the Canadian federal government, a Canadian provincial government, or a Canadian municipal government:
- Governor General, lieutenant governor or head of government;
- Member of the Senate or House of Commons or member of a legislature;
- Deputy minister or equivalent rank;
- Ambassador, or attaché or counsellor of an ambassador;
- Military officer with a rank of general or above;
- President of a corporation that is wholly owned directly by Her Majesty in right of Canada or a province;
- Head of a government agency;
- Judge of an appellate court in a province, the Federal Court of Appeal or the Supreme Court of Canada;
- Leader or president of a political party represented in a legislature; or
* In line with legislation across Canada, municipal governments include cities, towns, villages and rural (county) or metropolitan municipalities. As such, a mayor is the head of a city, town, village, or rural or metropolitan municipality, regardless of the size of the population.
A person ceases to be a domestic PEP 5 years after they have left office.
Who is a HIO?
A HIO is a person who is either:
1. The head of an international organization established by the governments of states; or
2. The head of an institution established by an international organization.
When we refer to the head of an international organization or the head of an institution established by an international organization we are referring to the primary person who leads that organization, for example a president or CEO.
There is no requirement for an institution established by an international organization to operate internationally. It is possible that an institution that has been established by an international organization only operates domestically, or in one jurisdiction.
It is your responsibility to use reasonable measures to determine if the person is the head of an international organization or the head of an institution set up by an international organization.
Once a person is no longer the head of an international organization, or the head of an institution established by an international organization, that person is no longer a HIO.
What is an international organization?
An international organization is an organization set up by the governments of more than one country. The key to determining whether you are dealing with a HIO is to determine how the organization was established. If the organization was established by means of a formally signed agreement between the governments of more than one country, then the head of that organization is a HIO. The existence of these organizations is recognized by law in their member countries, but the organizations are not seen to be resident organizations of any one member country.
Certain organizations clearly meet this definition, but others may require more research in order to come to a determination.
Who is considered to be a family member of a PEP or a HIO?
The family members of an individual described above that are determined to be:
- The mother or father;
- The child;
- The spouse or common-law partner;
- The spouse's or common-law partner's mother or father;
- The brother, sister, half-brother or half-sister.
Who is considered to be a close associate of a PEP or a HIO?
A close associate can be an individual who is closely connected to a PEP or HIO for personal or business reasons. The term "close associate" is not intended to capture every person who has been associated with a PEP or HIO.
If you determine that a person is a close associate of a domestic PEP or HIO you must conduct a risk assessment of that close associate.
Some examples of a close association for personal or business reasons include a person who is:
- Joint on a policy where one of the holders may be a PEP or HIO;
- Business partners with, or who beneficially owns or controls a business with, a PEP or HIO;
- In a romantic relationship with a PEP or HIO, such as a boyfriend, girlfriend or mistress;
- Involved in financial transactions with a PEP or HIO;
- A prominent member of the same political party or union as a PEP or HIO;
- Serving as a member of the same board as a PEP or HIO; or
- Closely carrying out charitable works with a PEP or HIO.
The examples provided are only a sample of considerations to assist you in identifying close associates. Because a close associate is not meant to be every person associated to a PEP or HIO, you will need to have a means to determine if this is a close association you need to identify and treat as such.
Please contact carriers directly in order to ensure that you are using up-to-date forms as of June 17, 2017.
Please note that this information is provided for information purposes only and should not be considered legal advice, nor does it reflect a decision, policy or interpretation of Financial Horizons Group Inc. and we suggest you obtain legal advice from a lawyer or notary in order to comply with the law and other regulations. Please note that this information may be subject to change. Prepared by the Financial Horizons Group Compliance team.