The Minister, the Trust and the Tea Estate
Halcyon Private Bank is onboarding Ms. R, a serving regional minister in a neighbouring country, as a private banking client. She proposes an initial deposit of USD 3.5 million into an account to be held by a BVI trust. The trust's settlor is her brother, a construction businessman who has won government contracts in her region; the protector is her husband; the beneficiary class includes Ms. R and her children. The relationship manager has a signed sale agreement for a family tea estate, a lawyer's 'source of wealth' letter, and a tax return showing income of USD 180,000 a year. The sale agreement is dated two months after the funds are said to have been received, and the lawyer's letter does not identify the buyer. The trust deed gives the protector power to remove the trustee. The relationship manager wants the account opened before quarter-end and says the client is 'well known and generous'. The bank's policy requires enhanced due diligence and senior management approval for PEPs.
1. Identify the PEP and red flags, and explain what the enhanced due diligence must establish.
Read the worked answer
PEP and red flags
Ms. R is a foreign PEP because she holds a prominent public function in another country. Her brother, the settlor, and her husband, the protector, are associates and may themselves be PEPs or relatives or close associates under the bank's policy. The trust adds complexity: the protector can remove the trustee, and the beneficiary class includes the PEP. The source-of-wealth file is weak. A lawyer's letter is not independent verification, especially where it omits the buyer. The sale agreement dated two months after the funds were said to be received is a material inconsistency, and declared income of USD 180,000 does not explain USD 3.5 million. The comment that the client is 'well known and generous' is not evidence.
What EDD must establish
The bank must identify the trust's settlor, trustee, protector, beneficiaries and any controller; verify the buyer of the estate and trace the sale proceeds through bank statements; obtain independent evidence of the brother's contracting business and any government contracts; understand why the funds are placed in a BVI trust; establish expected account activity and source of funds for the deposit; and screen all parties against sanctions, PEP and adverse-media lists. Senior management approval must be documented before onboarding.
2. Decide whether the bank should onboard the client now, and set out the approvals and ongoing monitoring if it later proceeds.
Read the worked answer
Decision
Compliance should not approve onboarding on the current file. The bank cannot establish source of wealth, and the timing inconsistency is unexplained. Under a risk-based approach, the correct decision is to request the missing evidence and pause. If the customer cannot or will not provide it, decline the relationship and document the reasons. A 'well known' client is not a substitute for evidence, and the quarter-end deadline is not a risk mitigant.
If the bank proceeds
Only after all parties are identified and verified, source of wealth is independently corroborated, and senior management approves in writing. The approval should record the residual risks: foreign PEP status, trust complexity, the protector's powers, related construction contracts and reputational exposure. Apply enhanced ongoing monitoring: lower review triggers, scrutiny of large or unusual transfers, periodic refresh of source of wealth, and escalation of any change in the protector, trustee or beneficiary class. Reassess whether the relationship is within the bank's risk appetite. If the file remains incomplete, the correct outcome is a documented decline, not conditional onboarding with unresolved source-of-wealth gaps.