Politically Exposed Persons (PEPs) and their influence in banks

‘Refusing a business relationship with a PEP simply based on the determination that the client is a PEP is contrary to the letter and spirit of the LAW’.

Dear readers, my last three articles have tried to look at how each bank stakeholder can contribute toward building a better banking system in various ways. I hope that the self-audit questions have been insightful and the ‘all hands on deck’ approach very practical to adopt.

After several reflections of my banking life, which spanned almost three decades in state banks, I have a strong feeling that Ghanaians – and for that matter, bankers – must be wary of another powerful force that has a huge impact on our banking business – Politically Exposed Persons, or PEPS for short.

Who is a Politically Exposed Person, or PEP?

This is a quote from Wikipedia: “In financial regulation, ‘politically exposed person’ (PEP) is a term describing someone who has been entrusted with a prominent public function. A PEP generally presents a higher risk for potential involvement in bribery and corruption by virtue of their position and the influence that they hold hold in banking circles.”

In banking circles, the term PEP is typically used referring to individuals in the financial services industry who are or have been entrusted with prominent public functions, both in Ghana and foreign countries, and those associated with them. Examples of PEPs include:

Heads of State or government; Ministers of State, Politicians, High ranking political party officials, Senior public officials, Senior Judicial officials, Senior military officials, Chief executives of state-owned companies/corporations, Family members or close associates of PEPs.

Types of PEPs

The following groups of PEPs have been identified:

Domestic PEPs:

Individuals who are or have been entrusted domestically with prominent public functions: for example, Heads of State or of government, senior politicians, senior government officials, judicial or military officials, senior executives of state-owned corporations, important political party officials.

Foreign PEPs:

Individuals who are or have been entrusted with prominent public functions by a foreign country: for example, Heads of State or of government, senior politicians, senior government, judicial or military officials, senior executives of state-owned       corporations, important political party officials.   

International Organisation PEPs:

Persons who are or have been entrusted with a prominent function by an international organization refers to members of senior management or individuals who have been entrusted with equivalent functions; i.e. directors, deputy-directors and members of the board or equivalent functions.

Family members:

These are individuals who are related to a PEP either directly or through marriage or similar (civil) forms of partnership.

Close associates:

These are individuals who are closely connected to a PEP, either socially or professionally.

Due to their position and influence, it is recognised that many PEPs are in positions which potentially can be abused for the purpose of committing money laundering (ML) offences and related predicate offences, including corruption and bribery, as well as conducting activity related to terrorist financing (TF).

Why am I concerned?

Now that you know who a PEP is, you will be wondering what I am fussing about. After all, who does not want a powerful person as a customer? The first quote in this article strictly cautions bankers that “Refusing a business relationship with a PEP simply based on the determination that the client is a PEP is contrary to the letter and spirit of the LAW”.

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As human beings, there is a natural tendency to treat PEPs specially, due to the influence and power they have in society; but a banker’s business decisions should be made professionally. As banking is the most regulated industry in the world, transactions and decisions ensure that they do not infringe any of the numerous laws and directives from government and the Regulator, Bank of Ghana. After all, there are strict guidelines to follow when accounts are opened for PEPs.

The Banker’s Oath of Secrecy

The protection of customers’ banking information that prohibits disclosure sometimes comes with mixed emotions. Many people know that bankers are not supposed to divulge banking secrets. However, the duty of confidentiality is not absolute. There are three exceptions to that duty: these are compulsion of law in the interest of the bank; in the public interest; and in the interest of the customer. As I watched events unfold in the recent bank crisis in Ghana, I was concerned that the blame-game had missed another player – the PEPs.

The influence of PEPs in some state banks over the last three decades has been very massive and should not be taken for granted. As we point our fingers at bankers and other stakeholders, the rest of the fingers are unknowingly pointing to that group, (PEPs). Sometimes the persons who shout “murder, treason, crucify them, jail them, etc.” are silent contributors to the bank collapses.

A professional banker never retires, and with my decades spent as a banker the duty of secrecy I swore in my former banking employments still stands. However, it hurts to see how PEPs continue to exert so much influence and yet sit quietly in their high places to condemn the bankers. Hmmm.

Before I go on, I want to remind readers that this column (THE RISK WATCH) of this newspaper is strictly an opinion page, and any resemblance in my references to any particular bank is purely coincidental. I will now look at the influence of PEPs in the last three decades of banking in Ghana.

The influence of PEPs in Banks – My Personal Observations

Although the definition by Wikipedia is very simple, it speaks volumes of how such persons can make or break a bank. In practical terms, PEPs do not necessarily have to open an account in a bank to exert the influence they want.

Sometimes I wonder why the rate of turnover for CEOs and Boards of Directors in state banks is so high. Moreover, it seems as if the changes flow with changes in government and therefore continue to ‘flow with the tides’. A CEO in a state bank knows that a change in the ruling government under his tenure will definitely see him or her receive marching orders. I believe the various governments have their reasons for the changes, but there seems to be more questions than answers. Some of my observations over the last three decades are:

  • There was a time when PEPs (Ministers, Heads of public departments and Treasurers) could have a big say in determining which state funds could be channeled through your bank. Sometimes the condition for that was for the bank to grant loans at preferential rates to their connected companies, family and associates. This is fine only if the businesses are feasible and the operators reliable; but in many cases, they are not. Repayment becomes a big problem for the banks. “Na who cause am?”
  • The CEOs seem to continue repeating the mistakes of their predecessors.
  • Some CEOs seem not to be able to say “no” to the demands of Ministers of State, Members of Parliament and prominent government or party gurus. I will not leave out big guns at the central bank. Its no joke, because I am a witness to some.
  • Why do CEOs and Boards of Directors of some state banks seem to ‘shut their eyes to the obvious’ and are afraid of being given their marching orders?
  • It seems that some members of parliament develop a penchant for changing their lifestyles, and do not mind taking loans far above their ability to repay. It becomes a desperate situation during election years when there are indications of inability to maintain their seats.
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What happens? Another round of loans to facilitate their campaigns for re-election!! Woe betide your bank if the election results do not go in the MP’s favour! The loan never gets repaid. There is no longer a regular source of income to fund repayment. Some are hiding in their constituencies, away from their bankers in Accra. Dear bankers, please be careful not to repeat these mistakes.

  • The close associates and family of PEPs sometimes exert unnecessary influence on bankers. Some even use the names of PEPs to facilitate money laundering into the country. Can you imagine that some Compliance Officers in banks are called by some PEPs to release funds from suspicious transactions, even when suspicious transaction reports have been sent to the Financial Intelligence Center?

To conclude, I wish to reiterate the fact that one being a PEP does not make the person a bad customer. After all, it is good to have rich and powerful people as customers. It is the PEP exerting unwarranted influence in a banker’s decision-making that sometimes makes the bank vulnerable. A look at the detailed list of non-performing accounts at some banks will surely show PEPs and their associates. However, my lips are sealed due to my everlasting oath of secrecy!

I pray that any PEP, their family members and associates who have bank accounts will do genuine business and continue operating the accounts so well that – even after the PEP has long retired – you will still enjoy a great relationship with your bankers.

Remember, the motto of the Chartered Institute of Bankers, Ghana is still Honesty and Integrity!!

ABOUT THE AUTHOR

Alberta Quarcoopome is a Fellow of the Institute of Bankers and CEO of ALKAN Business Consult Ltd. She is the Author of two books: The 21st Century Bank Teller: A Strategic Partner and My Front Desk Experience: A Young Banker’s Story. She uses her experience and practical case studies in training young bankers in operational risk management, sales, customer service, banking operations and fraud.

CONTACT

Website www.alkanbiz.com

Email: alberta@alkanbiz.com  or albique@yahoo.com

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