More often than not we see those who hold public or prominent positions in society make the headlines for links to financial crimes such as bribery, fraud or corruption. In order to tighten the reins on these crimes, the concept of Prominent Influential Persons (PIPs) and Politically Exposed Persons (PEPs) were introduced. The Financial Action Task Force (FATF) defines a PEP as an individual who is or has been entrusted with a prominent public function.
These concepts were amended when the Financial Intelligence Centre Amendment Act (FICAA) of 2017 came into effect. The overall concept of PEPs/ PIPs still remained the same but were classified as Domestic Prominent Influential Persons (DPIPs) and Foreign Prominent Public Officials (FPPOs) to better distinguish between foreign and domestic PEPs.
At the end of 2022, the above acronyms were again amended by the General Laws (Anti-Money Laundering and Combating Terrorism Financing Amendment Act). DPIPs are now referred to as DPEPs (Domestic Politically Exposed Persons), FPPOs are now referred to as FPEPs (Foreign Politically Exposed Persons) and Prominent Influential Persons (PIPs) now form part of a new Schedule 3C.
Importantly, DPEPs now include those individuals listed in Schedule 3A (Government Ministers, Executive Mayors of Municipalities etc) that have held a prominent or public position for a period exceeding 6 months, including in an acting position. Previously, this was limited to holding such position in the preceding 12 months, which included in an acting position exceeding 6 months.
The definition of an FPEP (foreign Heads of State, members of a foreign royal family) has been radically broadened, removing the previous 12 month time limitation such prominent public positions were capped to.
As above mentioned, a new category has been created for PIPs and to support this, a new Schedule 3C has been created for these PIPs. Such positions include individuals who hold, or have held, in the preceding 12 months, the position of a chairperson of the board of directors and audit committee, executive officer or CFO of a company in terms of the Companies Act, provided that the entity provides goods or services to an organ of state. Practically, this would include those private entities having government contracts and tenders.
As you can see from frequent news headlines, due to their position and influence, individuals in prominent public and politically exposed functions or positions are more likely to be faced with Money Laundering offences or other related offences, such as corruption and bribery. It is important to note that the requirement around these positions or functions goes further than just the individual themselves but includes their direct family members and close associates. This is because sometimes those with untoward intentions will use the people around them to avoid suspicion – by perhaps transacting in their name or making them the title holder of any assets, policies or investments.
A relevant example of this being the Digital Vibes scandal that took place in 2021 where funds intended for "a COVID and health communications project" were actually diverted to the family members and close associates of the Minister Health. Another example of funds being distributed to known associates or family members was the VBS saga that was identified in the Werksmans report.
However, the task of identifying these individuals has always proven to be tricky and often time consuming as there is no public list that contains the ever changing names of South African DPEPs. The FIC Act also does not specify the exact methods for identifying DPEP’s and so Accountable Institutions often have to rely on open data sources or a client’s disclosure when asked if they are a prominent or influential or politically exposed person or related to these persons. This information should be taken at face value as clients might not be telling the truth and open data sources can be outdated.
All things considered, just because a person is in a prominent or public or politically exposed position doesn’t mean that you should avoid doing business with them. Instead you should create and document a process on how to identify these individuals, as well as, once identified there should be further steps in place to screen these individuals’ source of funds, conduct regular customer due diligence (CDD) reviews and Senior Management to give their sign off prior to entering into a business relationship or undertaking a single transaction.
DocFox has set out - and achieved - to have the most comprehensive South African DPEP database. With this database Accountable Institutions no longer have to rely on potentially outdated data sources, unreliable client disclosures and no longer have to waste time manually researching each individual DPEP client. DocFox will automatically notify you if any person or entity loaded onto DocFox is a DPEP in South Africa. For an additional layer of due diligence we have also added the World Bank Debarred list.
To ensure you get the most up-to-date results our compliance team scours the latest financial crime related headlines and adds the names of individuals involved to the DocFox screening database to ensure that you truly know who your client is and if they are involved in any untoward scandals.
Read more here about DocFox Watchlist screening.