FinCEN Issues Guidance To Financial Institutions On Ongoing Events In Libya

Feb 25, 2011   

On February 16, 2011, the Financial Crimes Enforcement Network (FinCEN) issued a guidance advising reminding financial institutions as to their responsibilities regarding the political turmoil which was then ongoing in Egypt as the Mubarak government fell from power. (We reported on that guidance document here.) Today, as similar events unfold in Libya and as the Gaddafi government struggles to maintain power, FinCEN has issued another guidance document “to remind U.S. financial institutions of their requirement to apply enhanced scrutiny for private banking accounts held by or on behalf of senior foreign political figures and to monitor transactions that could potentially represent misappropriated or diverted state assets, proceeds of bribery or other illegal payments, or other public corruption proceeds.” (FinCENs February 25, 2011 Guidance Document may be read here). In other words, with the potential fall of the Gaddafi government, FinCEN has highlighted the risk that “Senior Foreign Political Figures” or “Politically Exposed Persons” in possession of funds misappropriated from the Libyan treasury may attempt to divert those funds in an effort to evade the jurisdiction of Libyan law enforcement.

Politically exposed persons (or “PEPs”) are generally known as persons who have been entrusted with a prominent public function, or individuals who are closely related to such a person. (United States law refers to PEPs as “Senior Foreign Political Figures.”) PEPs are viewed as money laundering risks due to the increased potential that they may be involved in bribery and corruption. Although it is not a violation of the law to provide banking or financial services for PEPs, financial institutions are generally advised to conduct enhanced due diligence on PEPs during the account opening process and enhanced monitoring of transactions once the account has been opened. As articulated by FinCEN in this announcement, “[i]n instances where senior foreign political figures maintain private banking accounts at a covered institution, those financial institutions are required to apply enhanced scrutiny of such accounts to detect and report transactions that may involve the proceeds of foreign corruption.”