One of the issues that I encountered as a compliance officer that was most troublesome was the 'creativity' of corrupt Politically Exposed Persons, or PEPs, all of whom wanted to place their funds of somewhat dubious origin. The tactics and tricks that they cleverly employ, whilst seeking to hide their illicit wealth, are difficult for most compliance officers to detect, but not impossible when you understand the techniques. What you need to have to uncover the truth is a healthy amount of cynicism when it comes to PEPs and an understanding of the typologies they resort to in their manoeuvres.
To survey the most commonly-used tricks of corrupt PEPs looking to place funds, or make investments, that I have seen:
* The use of relatives: This is not as simple as it seems; Most PEPs know, for their bankers have told them, that the best due diligence databases contain not only their own names and the reasons for their PEP designation, but the names of close relatives, such as spouses, children, and parents. They therefore move further afield. My favourite trick, which is in common use by PEPs seeking to hide beneficial ownership, is to select the adult children of their sisters. These individuals will, of course, have last names which easily pass muster, for they are different to that of the PEP, and they rarely appear in the open-source media linked to the PEP. Alternatively, if it is customary in their culture to use multiple or compound last names (e.g. in Latin America), close relatives may have sufficiently different names to escape detection. Smart compliance officers always search World-Check using both the phonetic and partial search features on all the names of a target, for they may find a PEP (or other high-risk individual) who shares one of their last names, This triggers further enquiry, to determine whether the target is a relative.
* The use of a solicitor/attorney: Remember the lessons of the Pinochet case; he utilised his primary lawyer to open accounts in the US when his accounts were closed, and the lawyer successfully conned New York bankers into believing that the large deposits were the lawyer's own funds. This is generally accomplished through either the successful lawyer ploy, or by claiming that one is wealthy by reason of an inheritance that took place several years ago. That's why I always asked to see the actual Order of Distribution, sent to me directly from probate counsel of record for the estate. Lawyers are often prised as bank clients, for they often open substantial trust or escrow accounts for their clients' transactions, and in many jurisdictions, these accounts are not interest-bearing. They are also very persuasive, and having had years of practice in advocacy, can often sound convincing and credible whilst they con a banker into taking dirty money they claim is clean.
* The use of a banker who is in on the scheme: This does not necessarily mean that the bank itself is a party to the crime, but only one corrupt banker who has been taken in by greed, blackmail, or some other form of persuasion. The problems is that the dirty banker will do his utmost to cover up the laundering. Back to the Pinochet case we go; in that matter, a certain corrupt banker told offshore financial centre law firms that they needed corporations formed for valued clients of the bank, without disclosing the beneficial owner. The law firm formed the companies in multiple jurisdictions, using standard firm nominees. Thus, nobody knew who was behind the accounts.
* The use of government-controlled companies: How many compliance officers actually enquire when opening an account for a foreign company, to rule out government control or ownership? A PEP holding himself or herself out as a senior official of what appears to be a private, commercial company,. who has all the company documents in order, all nicely certified, might just be using a government-controlled company as a front for his illicit movement of money into your bank. Enhanced due diligence, performed upon the company, can often turn up indicia of government control or ownership. Is the company acting in a manner consistent with a commercial business being operated for profit? If not, enquire further, for it may be a wolf in sheep's clothing.
