Friday, July 28, 2017


In the aftermath of the ruling of the Supreme Court of Pakistan, disqualifying Prime Minister Nawaz Sharif, due to the disclosures appearing in the Panama Papers, compliance officers at international banks must now ask themselves: do Politically Exposed Persons (PEPs) pose too great a risk to reputation, to carry them as clients ?

Sharif, whose family was unable to account for assets that were completely disproportionate top his known income, was outed, as were dozens of other PEPs, around the world, when their dirty laundry (ownership of BVI and Panama shell corporations, with bearer shares) was exposed in a very public way.

This brings up our point: why bank potentially these troublesome individuals at all ? Global corruption, in the developing world, remains at a very high level, as greed trumps morality in those jurisdictions where enforcement is lacking, due to the weakness in the Rule of Law. The positive publicity a bank may derive, from banking a prominent government leader, when newspaper photos are taken from his appearance at the bank, or the movement of lucrative government accounts to your bank, is not worth the possible damage he might later inflict upon the bank, either through negative news, regulatory fines & penalties, or even criminal charges.

My thought is, since you are operating a risk-based compliance program, that you red-line all PEPs from jurisdictions where corruption is known to be rampant, without exception. Unless you intentionally bar them, expect to be bitten, one way or the other, when they fall, either through exposure, indictment, extradition, or sanctions.

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