Banks start due diligence for MPs under new money laundering rules

Maltese banks are set to start extensive due diligence exercises for politically-exposed persons, according to a letter sent to Nationalist Party leader Simon Busuttil

Maltese banks such as HSBC are starting due diligence exercises
Maltese banks such as HSBC are starting due diligence exercises

Maltese banks such as HSBC Malta are starting extensive due diligence exercises for politically-exposed persons, as a letter sent to Nationalist Party leader Simon Busuttil by chief executive officer Andrew Beane shows.

In the July letter, shared with the PN parliamentary group and seen by this newspaper, Beane tells Busuttil that a VIP team at the bank will be responsible centrally for the management of PEP due diligence obligations.

Hundreds of people across the Maltese islands are likely to be affected under tighter rules to fight money laundering, as the definition of a politically exposed person will now include not just people with political functions, but also their spouses and close associates and relatives.

Under the new EU rules, the 4th Anti-Money Laundering Directive will see at least 300 domestic PEPs in Malta – possibly more – as well as family members and business associates, under closer scrutiny by banks and financial services providers.

The obligations of customer due diligence for banks are legally binding, and all PEP customers must complete them in order to retain their accounts with the banks.

“HSBC recognises these requirements can feel intrusive to customers, in particular that we are required to obtain a range of confidential information, such as an individual’s source of wealth,” Beane said in his letter to the PN leader. “We take significant steps to discharge our duties with discretion and with great care to client confidentiality.”

All in the family

For PEP relatives, the new AMLD rules will mean that opening a bank account will now be subject to enhanced due diligence measures.

Not only politicians, or party executives and directors of government entities will be subject to enhanced due diligence, but also their family members, such as spouses and partners, children, the PEP’s parents, as well as ‘close associates’ who have business relations or joint ownership of companies.

This will mean that institutions such as banks or insurance companies will have to obtain senior management approval to even establish a business relationship with such persons.

Thousands in Malta could be affected by the enhanced due diligence rule, if banks adopt a strict approach with people whose job in government was granted to them on a ‘person of trust’ basis – even though such placements include low-grade employees on security or cleaning duties.

Under such procedures, entities such as banks will have to make sure they can establish the source of wealth and funds that PEPs and their associates have, and then apply ongoing monitoring of the business relationship.

Entities will also have to take reasonable measures to determine whether the beneficiaries of a life insurance or investment policy are PEPs, and inform senior management before the pay-out of any policy proceeds, and carry out enhanced scrutiny of the relationship.

Even after a PEP is no longer entrusted with a public function, banks will still have to continue applying their enhanced due diligence for the next 12 months at minimum, until that person can be considered to be no longer a ‘PEP risk’.