Former official, current minister's brother-in-law, and an above-market state sale
A private bank in Geneva is asked to onboard Mr. A, a 58-year-old resident of Country X, who wants to deposit USD 2.5 million from the sale of his construction company. His wife is the sister of Country X's current minister of transport. Mr. A was deputy minister of public works eight years ago. He is not flagged by the bank's screening tool because the tool lists only current PEPs by exact name. The sale contract names a state-owned enterprise as buyer; an independent valuation obtained by the bank shows the price is 30% above fair value. Mr. A wants to complete the deposit and transfer the funds to a Dubai property purchase within two weeks. The relationship manager describes him as "a retired businessman" and says "he is not a PEP anymore." Source-of-funds documents include the sale contract, a lawyer's letter, and a company bank statement showing the receipt, but no evidence of the buyer's beneficial ownership or the origin of the buyer's funds.
1. Classify Mr. A for PEP purposes and identify the risk factors.
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Mr. A is a former PEP in Country X because he was deputy minister of public works. Many regimes apply PEP status for at least 12 months after leaving office, and a risk-based approach may extend it; eight years reduces but does not eliminate the risk. He is also a family member of a current PEP: his wife is the sister of the sitting transport minister. That family-member status makes him a PEP-related customer even if his own former status is treated as time-barred. The exact-name screening miss is a control weakness, not a substantive clearance. Risk factors are the sale to a state-owned enterprise at 30% above an independent valuation, the urgent two-week timetable, the cross-border real estate purchase in Dubai, and the absence of information on the buyer's beneficial ownership. The premium is the central red flag because it could be a mechanism for transferring value to a public official's family.
2. Design the EDD measures and approval route for this customer.
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EDD should include source of wealth: audited financial statements of the construction company, tax returns, the sale contract, evidence of the buyer's tender or valuation, and an explanation of the 30% premium. Source of funds: bank statements tracing the USD 2.5 million from the buyer through Mr. A's account. Buyer due diligence: identify the state-owned enterprise's beneficial owners and the officials who approved the purchase. Screening: Mr. A, his wife, and close associates against PEP and adverse-media lists in the local language. Approval: senior management sign-off before onboarding. The RM's "retired businessman" label is not sufficient. The bank should also consider whether the Dubai purchase is a related-party transaction. If the premium cannot be explained, the risk is unacceptable.
3. What would you do if the customer refuses to provide buyer information or explain the premium?
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If Mr. A refuses to provide buyer information or explain the premium, do not proceed. Escalate to the MLRO and consider filing a suspicious transaction report if the facts suggest corruption or bribery; the bank should not tell the customer that a report is being considered. Decline the relationship, or if the account already exists, restrict it and consider exit. Keep a detailed record of the refusal, the questions asked, and the decision. The reasoning is that EDD is not a box-ticking exercise: inability to explain an above-market state sale defeats the purpose of verifying source of wealth.