The report looks at due diligence requirements for PEPs in Mainland China, Hong Kong, Malaysia and Singapore.

Wealth managers and other organisations in Asia face a mounting challenge of identifying politically exposed persons at risk of falling foul of money laundering laws, as highlighted by recent scandals such as around Malaysia’s 1MDB, a report finds.

The report issued by LexisNexis Risk Solutions looks at due diligence requirements for PEPs in Mainland China, Hong Kong, Malaysia and Singapore. 

The term “politically exposed person” is typically applied to someone holding a prominent public function, such as a bureaucrat, politician or head of an organization dispensing public funds. PEPs are said to carry more risk for potential involvement in bribery and corruption by virtue because of their position than is the case with other members of the public.

The report said it found that the significant numbers of entries on PEP lists, including PEPs, their relatives and associates, have created difficulties in effective PEP screening.

Recently, Asia has been rocked by a number of bribery and corruption scandals, the most prominent of which has involved financial transactions linked to 1MDB, the state-backed Malaysian fund. Malaysian prime minister Najim Razak has been accused of siphoning money off for personal gain (he has denied the claims). BSI and Falcon Private Bank have been expelled from Singapore amid claims of lax controls linked to 1MDB-related transactions. Elsewhere, Indonesia’s corruption watchdog has arrested one of the country’s most powerful politicians, who for weeks had evaded questions surrounding his alleged role in the theft of $170 million of public cash. Setya Novanto, speaker of Indonesia’s House of Representatives, was recently involved in a car crash and admitted to hospital a day after he had evaded arrest in a police raid on his home. He is accused of being among 80 people, mostly officials and politicians, who used a $440 million electronic identity card system to steal more than a third of the funds. Other organisations, such as Kroll, the risk management and consultancy firm, have flagged concerns about bribery, corruption and dirty money in regions such as Asia. 

Rising concerns about how wealth managers can spot potential problems and be alerted to issues around PEPs has spawned the rise of "regtech" firms offering solutions, such as smartKYC, for example, Equiniti, Thomson Reuters or KYC Global Technologies Group.

"The need for financial transparency has never been greater. Proper handling of potential risks posed by PEPs requires a holistic customer risk assessment process that focuses on effectively assessing risk using a variety of factors. Only then can businesses and financial institutions apply the proper controls to identify activities of concern and mitigate reputational, legal and regulatory risks," Thomas C Brown, senior vice president, US Commercial Markets and Global Market Development, LexisNexis Risk Solutions, said.

Customer due diligence in Asia has gained recent prominence, with a growing set of regulations that have come into force. International anti-money laundering standards recommended by the Financial Action
Task Force have provided a framework for member jurisdictions, among them Mainland China, Hong Kong, Malaysia and Singapore, to lay out requirements for the prevention of money laundering and terrorist financing, the report continued. 

The study pointed to particular issues in the jurisdictions. 

Mainland China: The volume of investigations into corruption and the subsequent media coverage is particularly high in Mainland China compared to the other countries and regions. Government-led anti-corruption campaigns have resulted in a number of high-profile and senior-ranking officials being prosecuted for corruption and bribery offences. However, enforcement figures suggest that prosecutions involving public servants are significantly lower.

Hong Kong: Convictions in the territory under the main anti-bribery and corruption legislation, The Prevention of Bribery Ordinance, are relatively low compared to other jurisdictions; however, there has been a 23 per cent increase, from 93 to 114, in the last two years.

Malaysia: Under the Malaysian Corruption Act (2009), the Malaysian Anti-Corruption Commission is responsible for investigating and enforcing corruption offences. Numbers of prosecutions remain modest, as the reported number of offenders among public officials has only been 118 in the last two years.

Singapore: Cases resulting in convictions in Singapore are somewhat behind other regional jurisdictions. Fewer than 40 people in the public sector were prosecuted under the Prevention of Corruption Act and the Corruption and Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act, in 2013 and 2014 combined.