FinCEN Issues Guidance To Financial Institutions On Recent Events In Egypt
On February 16, 2011, the Financial Crimes Enforcement Network (FinCEN) issued a guidance document (available here) “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.” In other words, with the departure of the Mubarak government from power and potentially into exile outside of Egypt, FinCEN has highlighted the risk that “Senior Foreign Political Figures” or “Politically Exposed Persons” in possession of funds misappropriated from the Egyptian treasury may attempt to divert those funds in an effort to evade the jurisdiction of Egyptian 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.”
Given the widespread allegations that the Mubarak government misappropriated billions of dollars during its thirty year term, “[f]inancial institutions should be aware of the possible impact that events in Egypt may have on patterns of financial activity when assessing risks related to particular customers and transactions.”